Finance Minister Grant Robertson says New Zealand's in a strong position to stand up to the economic and health impacts of coronavirus, and said in a worst case scenario "immediate fiscal stimulus to support the economy" may be considered.
In a speech on Thursday Robertson noted it was "welcome" that there has not yet been a case of coronavirus in NZ. Nonetheless he said health experts advise it remains a high probability that NZ will have a case at some point. The Government has the capacity and ability to "do what it takes," he said.
"Beyond the public health response, we are taking a whole-of-government approach to managing the outbreak and planning for further scenarios. A key part of this is our planning for the economic impacts of the virus," Robertson said.
"We go into this situation with the economy in good shape. We are in a strong position to stand up to the economic and health impacts of coronavirus. Looking across fiscal and monetary policy, our labour market, consumer and business confidence readings and our housing market, the economy showed solid signs of improvement in late 2019."
"We go into this with our official interest rate higher than many other advanced economies – our Reserve Bank’s OCR at 1% is above Australia and the UK at 0.75%, and there are negative rates across Europe, said Robertson.
"We go into this with very low Government debt compared to the rest of the world. Credit ratings agency Moody’s recently reported that New Zealand’s Government debt position is significantly lower than other countries with its top Aaa rating."
"And we go into this situation off the back of our Government’s announcement of additional infrastructure investment in roads, rail, schools and hospitals under the New Zealand Upgrade Programme. We are investing to support, grow and modernise our economy," Robertson added.
"New Zealand is in a strong position to respond to the impacts of coronavirus."
A high level of uncertainty
Nonetheless Robertson acknowledged there's a high level of uncertainty about what will unfold.
"It is not possible for anyone at this stage to give definitive answers to significant questions, such as: How long will it last? What will the global reach be? How deep will the impact be felt?"
"But while we look for answers for those questions, we can say some things with certainty. This will have a serious impact on the New Zealand economy in the short term," he said, highlighting the impact on tourism and the tertiary education sector with estimates of about 40% of foreign students not travelling to NZ.
"It is obvious that if the docks in China are shut down because workers are not able to get to work, then this will impact New Zealand’s log and food exports. Although I will add that we are starting to hear reports of some shipments getting through. Chinese authorities are also prioritising food shipments into China, which is positive for a country like New Zealand," Robertson said.
"We also know that the supply chain disruption in China is having some effects here in New Zealand, where domestic companies rely on imports from China that are not moving at this time. Very early, we began speaking to industry groups about how we could help them respond to the initial impacts of coronavirus."
Three potential scenarios outlined
Robertson said current international analysis of the economic impacts from coronavirus focuses on a scenario where the virus is contained and there is a short, sharp impact on the global economy in the first half of 2020, before activity returns to normal levels.
Within NZ an Economic Advisory Group led by the Treasury and including the Reserve Bank and the Ministry of Business, Innovation & Employment is assessing three scenarios:
Scenario one predicts a temporary global demand shock where there's a temporary but significant impact on the NZ economy across the first half of 2020, before growth rebounds in the second half as exports return to normal.
The second scenario is based on a longer lasting shock to the domestic economy, as the global impact feeds through for a period of time, and where there are cases of coronavirus in NZ.
And the third scenario is planning for how to respond to a global economic downturn if the worst case plays out around the world, and there's a global pandemic, Robertson said.
"We believe it is sensible and responsible to plan for these multiple scenarios. It does not mean we are predicting them. But it means we can continue to act swiftly and decisively as the impacts of coronavirus on the global and domestic economies become clearer, so that we can support Kiwis and New Zealand businesses," said Robertson.
"Our officials here are actively monitoring this situation, drawing on all data and analyses that they can to adjust our assumptions and forecasts. This includes administrative data that might provide more timely signals than traditional economic indicators which are reported with a lag."
"It also includes high-frequency data from China that economic analysts around the world are keeping tabs on – ranging from coal consumption to air pollution levels and traffic jams in Chinese cities to monitor activity there," said Robertson.
"We are in a good position to handle the situation, however it develops."
The second scenario would see the domestic economy experiencing a longer period of slower growth, throughout 2020, due to the global effects of coronavirus.
"Under this scenario, global uncertainty about the worldwide spread and containment of the virus causes deeper impacts on directly exposed sectors, as our trading partners feel the effects of coronavirus. We would expect to experience a decline in visitor arrivals from other markets outside of the temporary travel ban due to the economic impact that the virus has in other countries – like what we’re seeing now with South Korea," said Robertson.
"These external effects lead to broader indirect impacts across the domestic economy, with business and consumer confidence falling and the subsequent impact on investment and spending decisions."
Potential for fiscal stimulus
In scenario three, where the virus outbreak becomes a global pandemic leading to a global downturn or a global recession, "it may be necessary to consider immediate fiscal stimulus to support the economy as a whole and businesses and individuals through this period," said Robertson.
"I hasten to add that we are not predicting this scenario. But we are doing the planning for it. I also remind you that these scenarios are all temporary. The effects of this virus will pass. We are in a strong position to handle these scenarios."
"We have the capacity and ability to do what it takes," Robertson said.
'Talk to your bank'
Bank lobby group the New Zealand Bankers' Association says businesses and individuals financially affected by coronavirus should talk to their bank.
“We’re aware that some businesses, particularly small to medium sized ones, are being financially impacted by this unfolding global issue. The same may apply to individual customers working in sectors directly affected. Banks can offer affected customers support,” says New Zealand Bankers’ Association chief executive Roger Beaumont.
“The sooner you talk to your bank, the better placed they are to help you. Good two-way communication between customers and their banks is essential to helping get through financial stress. Depending on your circumstances, there are a number of ways in which banks can help.”
Beaumont said potential measures to assist bank customers include:
·Reducing or suspending principal payments on loans and temporarily moving to interest-only repayments
·Helping with restructuring business loans
·Consolidating loans to help make repayments more manageable
·Providing access to short-term funding
·Referring individual customers to budgeting services.
Vaughan, G., 2020. Finance Minister Grant Robertson Says New Zealand Is In A Strong Position To Respond To The Impacts Of Coronavirus. [online] interest.co.nz. Available at: <https://www.interest.co.nz/news/103820/finance-minister-grant-robertson-says-new-zealand-strong-position-respond-impacts> [Accessed 22 January 2020].