and the NZ Economy James Philip Caldwell Senior Industry Analyst - - PowerPoint PPT Presentation

James Philip Caldwell– Senior Industry Analyst

Economic Insights: COVID-19 and the NZ Economy

Agenda:

• Macroeconomic update
• Most exposed industries
• International trade
• Government response

Macroeconomic ic Update te

New Zealand GDP gro rowth th

• 2019-20 GDP growth: 1.5% (2.0%

pre-COIVD)

• 2020-21 GDP growth: -3.9

3.9% (2.3% forecast before COVID)

• Assumed 6-month period of lock-

down and disruption. Growth from Jan 2021

• Recession expected end of

September Quarter

• 6.00%
• 4.00%
• 2.00%

0.00% 2.00% 4.00% 6.00% 8.00% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Unemployment ra rate te

• Rise from 4.1

.1% in 2019-20 to 7.5% in

2020-21.

• Annual average of monthly results,

which understates the peak

• Peak unemployment of 9.5% (in June

Quarter)

• Partially contained by the

Government’s Wage Subsidy

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Household ld dis iscretionary in income

• 2019-20: -0.2% decline
• 2020-21: -8.2% decline
• and insurance costs rising.
• Weak wage growth was already limiting

consumer spending power.

• 15.0%
• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0% 20.0% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Per r capita ta dis iscreti tionary in income

$- $2,000.00 $4,000.00 $6,000.00 $8,000.00 $10,000.00 $12,000.00 $14,000.00 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

• 2019-20: $ 12,409.33
• 2020-21: $ 11,261.48
• Historically takes between 4 and 8 years

to recover.

• Circular affect on the economy

Tourism & Hospitality

In Inte ternational tr travel l to to New Zealand

GFC COVID-19

• Strongest fall since the GFC outbreak (-

4% 4%)

• Factors:
• Border Closures
• Deterioration of Global Economy
• Trans-Tasman Bubble
• International travel by New Zealanders is

also expected to fall

• Both inbound and outbound

tourism expected to rebound strongly in 2021-22

• 30.00%
• 25.00%
• 20.00%
• 15.00%
• 10.00%
• 5.00%

0.00% 5.00% 10.00% 15.00% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Weak demand

• Australia is the largest market in terms of

tourism expenditure

• The travel ban has put pressure on tourism

businesses across Australia

• High impact:
• Airlines
• Accommodation providers
• Travel agencies
• IBISWorld expects that rev + profit will fall for all

these three industries in 2020-21.

• Moderate impact:
• Restaurants/food-service
• Recreational and cultural sites
• Local transport services

Australia 55% China, People's Republic of 16% United States of America 13% United Kingdom 8% Germany 4% Japan 4%

Domestic Demand

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

• Domestic tourism worth approximately $23

billion in 2018-19.

• Expected to decline by 14.2% in the current

year, recovering in 2023-24.

Weak demand

Industry Rev Change 2020-21 (f) Growth, pre-COVID-19 I4900NZ Airlines

• 35.00%

2.30% H4401NZ Hotels and Resorts

• 13.80%

0.60% H4409NZ Motels, Hostels and Holidays Parks

• 18.0%
• 1.30%

Hospitali lity

• Most severe revenue declines could be similar to airlines

in 2020-21 (20%+)

• Pubs, bars, nightclubs – 47.8%
• Restaurants and Café’s – 25.1%
• IBISWorld expects that rev + profit will fall for all

hospitality industries in 2020-21.

• Delivery services
• Double edged sword

Retail

Supermarkets

• Supermarket store traffic surged

during the rush to stockpile (mid-march)

• Drove growth in industry

revenue in 2019-20 FY

• Forecast decline of 2.3% in

current year

Postal Services

• Growth in online

shopping is expected to lead to a surge in parcel’s requiring delivery.

• Forecast growth of

2.4%, revised upwards from -0.3%

Inte ternational Tra rade

Exports: Country of f Desti tinati tion

• Highly exposed to China
• Australia has had some success in ‘flattening

the curve.’

• Tourism expected to limit decline in exports.
• United States and European Union
• Struggling to contain the outbreak
• Over

erall all: Hig ighly ly exp xposed with ith a a sus sustained do downturn pr predicted.

Country of final destination 2019 (NZ$ Millions) Share TOTAL 77,961 China, Peoples Republic of 15,329 19.7% Australia 13,852 17,8% European Union (including United Kingdom) 8,835 11.3% United States of America 8,517 10.0% Japan 4,167 5.3% Korea, Republic of 2,122 2.7% India 1,862 2.4% Singapore 1,615 2.1% Hong Kong, SAR 1,584 2.0% Other 20,080 25.8%

Government response

Wage Subsidy Scheme

• Initial cost of $12 billion
• Payment rates
• $585.80 (gross) per week for full-time employees,

where full-time is 20 hours or more per week.

• $350.00 (gross) per week for part-time employees,

where part-time is less than 20 hours per week.

• Estimated to save 140,00 jobs – limiting the

decline in unemployment.

Cash ra rate te

• Currently: 0.25%
• Quantitative Easing
• Factors:
• Soft economic growth
• Below-target inflation (potential deflation

from 2021)

• Rising unemployment
• Weak wage growth
• Negative consumer sentiment
• COVID-19

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Thank you!