Bank forecasts unemployment could rise to 9% and economy could 'easily' contract 10%

Wednesday, 25 March 2020

Unemployment could more than double to 9 per cent and New Zealand's GDP could contract by 10 per cent, BNZ research head Stephen Toplis says.

All forecasts in the current situation were 'nonsensical', Toplis said.

But he advised people 'not to be complacent' about how high unemployment could go, as the country prepared to go into lockdown.

The best-case scenario was that unemployment would rise to 7 per cent, but BNZ's 'central scenario' saw it rising higher than 9 per cent, he said.

'The labour market will bear a lot of pain.

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'We think the unemployment rate will peak at the end of next year but that it will drop sharply thereafter.'

The second quarter would see 'the biggest quarterly decline in activity ever seen', he said.

BNZ had pencilled in a 5 per cent decline in GDP for the three months to the end of June, 'but it could easily be more than double this', he said.

'Manufacturing took the initial hit but now seems to be stabilising, albeit at low levels of activity,' he said.

'The global services sector is now being pummelled, as an increasing number of countries go into some form of lockdown.'

Despite the gritty forecast, there were signs that some investors were taking a punt that sharemarkets might have bottomed-out.

The NZX and ASX were both up more than 2 per cent during late afternoon trading on Wednesday, but showing signs of running out of puff.

US sharemarkets, which have previously been hard hit, enjoyed a stronger bounce overnight.

The Dow Jones industrial average clawed its way back to close more than 11 per cent higher overnight while the technology-rich Nasdaq index was up 8 per cent.  

Preliminary data released by Statistics NZ on trade during the week up to last Wednesday indicated New Zealand exports were holding up well – at least until then.

New Zealand's exports rose 3.7 per cent while imports fell 11 per cent, despite a 14 to 15 per cent slump in New Zealand exports and imports to and from China.

Toplis saw light at the end of the tunnel.

'However horrific' the second-quarter decline in GDP turned out to be, that should not be seen as the beginning of a great depression, he said.  

'No matter how deep this recession gets, we believe that total activity in the economy will return to where we started this mess by the second half of 2022.'