The BNZ has revised its economic outlook downwards and warned of a tougher Christmas retail period ahead as New Zealand transitions away from a “zero Covid” strategy.
“New Zealand has well and truly passed the point where it can live in the hope of operating in a Covid-free bubble,” says BNZ head of research Stephen Toplis.
“Now we are moving rapidly towards living with the disease, accepting that there will be a significant increase in hospitalisations and, unfortunately, deaths. The key questions now are how fast can we get to this state and what are the prerequisites for doing so?”
Prime Minister Jacinda Ardern this morning told RNZ: “We still need to control this outbreak, but we are transitioning.”
Toplis said he expected today’s (4pm) announcement would see”a step in the direction of getting rid of the levels terminology altogether.
“Policy moving forward is likely to be far more pragmatic, and a lot less rules-based, as the Government progressively transitions New Zealand into a Covid-endemic world.”
But regardless of the details the BNZ team would be looking to lower fourth quarter
GDP forecasts over the next few days.
The bounceback in the fourth quarter was now more likely to be around 6 per cent – rather than the previously forecast 7 per cent, he said.
New Zealand’s longer-term economic growth trajectory would also now need to be re-evaluated, Toplis said.
“Our current forecasts implicitly assume the economy operates in a relatively Covid-free manner from mid-November onwards.
“This no longer looks to be the case. Either way we will be more restricted than we are currently assuming, or the spread of Covid in the community will be adversely
impacting consumer spending, especially in the services sector, as folk fearing Covid go out less.”
Toplis retained some optimism for the hospitality sector, looking forward to reopening in time for the festive season.
“There is every reason to be optimistic. However, we strongly caution there is a very real risk the Christmas bonanza will be nowhere near as rewarding as it would
have been in a ‘normal’ holiday season.”
The BNZ is sticking with the expectation that the Reserve Bank will hike the Official Cash Rate on Wednesday but has downgraded the probability to 85 per centfrom
100 per cent”in recognition of the issues being confronted”.
“Ironically, as we all demand greater and greater clarity about the way ahead, the truth of
the matter is that we are entering a period of heightened uncertainty and experimentation,” Toplis said.
“Uncertainty is never great for business planning especially around investment activity.”
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