Economic snapshot: Will the faster than expected recovery be snuffed out?

Monday, 6 July 2020

Retail spending data on Friday is expected to show Kiwis are shopping like there is no recession.

Businesses are benefitting from a “sugar rush” as Kiwis continue to open their wallets after lockdown, analysts say.

But rising Covid-19 cases overseas and the slimmer prospects of border restrictions being lifted are increasing concerns that the recovery may prove fragile.

The New Zealand Institute of Economic Research’s quarterly survey of business opinion which will be released on Tuesday will inevitably show a plunge in business confidence in the June quarter, ASB senior economist Mark Smith said.

But June’s figures for retail card spending on Friday should be more encouraging, he said.

* Economic snapshot: markets on edge over jump in Covid cases

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Westpac senior economist Satish Ranchhod says New Zealanders are investing in their homes after lockdown.

“We expect a 10 per cent lift from May’s partial rebound.

“Our own transaction data showed further recovery in transactions to similar levels that were occurring before New Zealand went into lockdown.”

Kiwibank said its data also showed “a strong and persistent rise in activity” across the reopened economy.

“More of us ordered pools, fixed fences, laid pavers, and even bought pets.”

Westpac said it had heard a lot of anecdotes about people spending up on home renovations.

“After being stuck inside for a month, New Zealanders are in the mood to hit the town again, with many of the households we spoke to telling us that it’s a good time to increase their spending in bars,” senior economist Satish Ranchhod said in a weekly bulletin.

“People are also keen to spend more on in-home entertainment, like Netflix and online gaming.”

Marley Howard, manager of Stacks Furniture in Wellington, said the store had been unexpectedly “incredibly busy” after the lockdown.

“I think it must have been that one month in lockdown, everyone maybe got sick of their decor and decided it was time for a change.

“To be honest, we didn’t have our hopes up coming out of lockdown, so being busy wasn’t expected. But it was a nice surprise.”

United States share markets were back near record highs after US jobs data last week indicated American employers had hired or rehired 4.8 million workers in June, more than an expected 3m.

But Kiwibank said thoughts about reopening borders had been “postponed” as a result of the resurgence of Covid cases overseas and New Zealand’s “own issues protecting the border”.

”We have eliminated the virus domestically. But we continue to import the virus.”

It questioned whether the consumer “spend-up” could continue without the GDP contribution from tourism.

“The toughest question Kiwis must ask, and debate, is whether we're willing to risk our whole economy to breathe life back into our suffocating tourism industry,” it said.

The number of new global daily cases of Covid-19 is marching higher and topped 200,000 for the first time late last week, according to statistics service Worldometer.

New global diagnoses are now consistently more than double the number they were when New Zealand moved down from level 3 lockdown to level 2 on May 13.

However, the number of daily deaths reported globally from Covid-19 has so far remained roughly steady, usually falling within a range of between 3000 to 5000 since then.

By way of comparison, the World Economic Forum reported about 150,000 daily deaths from all causes in 2017.

The steadying death rate from Covid may reflect a combination of under-reporting, a changing age-mix among patients as older people self-isolate and the disease spreads in developing countries, improved management of the disease, and the time lag between diagnosis and death or recovery.

The vast majority of Covid cases are believed to go undiagnosed and a number of health organisations, such as the London School of Hygiene and Tropical Medicine, have been estimating the overall death rate from the disease at about 0.6 per cent.

But there have been growing concerns too about the long-term impact of the disease on those who survive.

Prime Minister Jacinda Ardern confirmed on Monday that the Government would not further extend wage subsidies beyond September. At their peak, the subsidies are believed to have helped pay the wages of about 70 per cent of the country’s private sector workforce.

The Government paid out $11.9b through the first tranche of wage subsidies, which required applicants showed a 30 per cent drop in revenues due to Covid in any month between January and June.

It has budgeted a further $3.2b for a second round of wage subsidies for businesses which can show a 40 per cent monthly impact, prior to applications for that further help closing on September 1.

In combination, the schemes can pay employers $585.80 a week per full-time worker and $350 per-part-time worker on their books, over a maximum period of 20 weeks.

Kiwi exporters may face a separate headache as subsidies are withdrawn, with some signs that the impact of the Reserve Bank’s attempts to talk up its options to loosen monetary policy may be waning.

The New Zealand dollar was trading at US65.5c on Monday, up about US0.5c on where it stood prior to the Reserve Bank talking up the possibility of significant further quantitative easing during its June statement on the Official Cash Rate.

Reserve Bank chief economist Yuong Ha noted during a webinar hosted by Bloomberg last week that it had not committed to any action.