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

Economic Insights: COVID-19 and the NZ Economy James Philip Caldwell – Senior Industry Analyst

Agenda: - Macroeconomic update - Most exposed industries - International trade - Government response

Macroeconomic ic Update te

New Zealand GDP gro rowth th 8.00% • 2019-20 GDP growth: 1.5% (2.0% 6.00% pre-COIVD) • 2020-21 GDP growth: -3.9 3.9 % (2.3% 4.00% forecast before COVID) 2.00% • Assumed 6-month period of lock- down and disruption. Growth from 0.00% 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 Jan 2021 -2.00% • Recession expected end of September Quarter -4.00% -6.00%

Unemployment ra rate te 8.00% • Rise from 4.1 .1 % in 2019-20 to 7.5% in 2020-21. 7.00% • Annual average of monthly results, 6.00% which understates the peak 5.00% • Peak unemployment of 9.5% (in June Quarter) 4.00% • Partially contained by the 3.00% Government’s Wage Subsidy 2.00% 1.00% 0.00% 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 20.0% 15.0% • 2019-20: -0.2% decline 10.0% • 2020-21: -8.2% decline 5.0% • and insurance costs rising. 0.0% 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 -5.0% • Weak wage growth was already limiting consumer spending power. -10.0% -15.0%

Per r capita ta dis iscreti tionary in income $14,000.00 • 2019-20: $ 12,409.33 • 2020-21: $ 11,261.48 $12,000.00 • $10,000.00 Historically takes between 4 and 8 years to recover. $8,000.00 • Circular affect on the economy $6,000.00 $4,000.00 $2,000.00 $- 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

Tourism & Hospitality

In Inte ternational tr travel l to to New Zealand • Strongest fall since the GFC outbreak (- 4% 4%) 15.00% • Factors: 10.00% • Border Closures 5.00% • Deterioration of Global Economy 0.00% • Trans-Tasman Bubble 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 GFC -5.00% • International travel by New Zealanders is -10.00% also expected to fall • Both inbound and outbound -15.00% tourism expected to rebound -20.00% COVID-19 strongly in 2021-22 -25.00% -30.00%

Weak demand Japan Germany 4% 4% • Australia is the largest market in terms of United Kingdom tourism expenditure 8% • The travel ban has put pressure on tourism businesses across Australia • High impact: United States of • Airlines America 13% • Accommodation providers • Travel agencies Australia 55% • IBISWorld expects that rev + profit will fall for all these three industries in 2020-21. • Moderate impact: • Restaurants/food-service China, People's Republic of • Recreational and cultural sites 16% • Local transport services

Domestic Demand 15% 10% • Domestic tourism worth approximately $23 billion in 2018-19. 5% • Expected to decline by 14.2% in the current 0% year, recovering in 2023-24. 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 -5% -10% -15% -20% -25%

Weak demand Industry Rev Change 2020-21 (f) Growth, pre-COVID-19 I4900NZ -35.00% 2.30% Airlines H4401NZ -13.80% 0.60% Hotels and Resorts H4409NZ -18.0% -1.30% Motels, Hostels and Holidays Parks

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 2019 (NZ$ Country of final destination Millions) Share TOTAL 77,961 • Australia has had some success in ‘flattening the curve.’ China, Peoples Republic of 15,329 19.7% • Tourism expected to limit decline in exports. Australia 13,852 17,8% European Union (including United Kingdom) 8,835 11.3% • United States and European Union United States of America 8,517 10.0% • Struggling to contain the outbreak Japan 4,167 5.3% Korea, Republic of 2,122 2.7% • Over erall all: Hig ighly ly exp xposed with ith a a sus sustained downturn pr do predicted. 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% 9.00% 8.00% • Quantitative Easing 7.00% • Factors: 6.00% • Soft economic growth 5.00% • Below-target inflation (potential deflation 4.00% from 2021) 3.00% • Rising unemployment 2.00% • Weak wage growth 1.00% • Negative consumer sentiment • COVID-19 0.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

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