The world is in the midst of an unprecedented health and economic crisis. The COVID-19 pandemic is wreaking havoc on lives and livelihoods, including here in New Zealand.
Unprecedented activity restrictions have been broadly successful in their health aims but have stopped the global economy in its tracks. The economic slump underway is truly enormous.
Rightly, the crisis has galvanised policymakers with governments and central banks taking unprecedented steps to cushion the blow and ease pressures in financial markets. Nonetheless, the impact of this crisis will be with us in months and years to come.
The path from here is even more uncertain than usual, but economic pain is inevitable. ANZ Research expects to see a sharp hit to New Zealand gross domestic product over the first half of calendar 2020.
The magnitude of this and the subsequent bounce in activity will depend on whether the outbreak can be contained sustainably, the duration of activity restrictions, and the path to reopening the economy.
Even though New Zealand is doing very well in its battle against the virus, enormous fiscal and monetary stimulus could be required through this period to support households and businesses that are under pressure. Even with stimulus, NZ unemployment is likely to increase to 11 per cent and even once the lockdown dust has settled, GDP at the end of the year could still be 8 per cent to 10 per cent down on where it was a year earlier.
The eventual recovery is expected to be slow, with the current slump causing significant persistent damage. And the international tourism sector, a very large earner, is out for the count. Uncertainty will take a while to dissipate and households and firms will look to reduce their debt levels, dampening demand for a long time.
Despite the body blow to tourism, ANZ Research expects to see a net export-led recovery, with the domestic economy for its part supported by enormous fiscal and monetary stimulus.
The economy will not return to its previous trend, but over time it will find a new equilibrium. Some industries will need to change and may well be smaller, while other parts of the economy will benefit.
There are plenty of challenges ahead. But as the economy evolves, there will be opportunities.
The world is currently navigating a health and economic crisis not seen before in modern times. The highly restrictive measures required to slow the spread have brought the global economy to a halt.