RBNZ Survey: Experts Say Stimulus Package Not Enough To Help Economy

30 March, 2020, New Zealand – As New Zealand enters day five of a month-long compulsory shutdown, experts are unanimous in their view that a recession is now highly likely.

In the latest Finder RBNZ Official Cash Rate Survey, nine experts and economists weighed in on fiscal stimulus measures put in place by the Government and Reserve Bank in response to the COVID-19 pandemic.

While 100% (9/9) of experts believe a recession is looming, more than half (55%, 5) anticipate it to be sharp yet short lived, saying that it won’t last beyond 2020. Around a third (33%, 3) predict it to last until mid to late 2021.

Debbie Roberts, from Property Apprentice, said that the rate of economic recovery depends on how strictly New Zealanders follow Government regulations around social distancing.

“If we don't follow the rules, we could easily find ourselves in for a very lengthy and painful recession. If we all do as we are told, then hopefully we will be starting to show signs of recovery before the middle of 2021,” she said.

Cash rate cut was the right call
The RBNZ announced an emergency rate cut of 50 basis points on 16 March, taking the official cash rate (OCR) to just 0.25%. This is set to hold for the next 12 months.

Nearly all (88%, 8) experts agree that the Reserve Bank made the right move by lowering the rate.

According to Alfred Guender, from the University of Canterbury, “The massive decrease was made to achieve the greatest psychological effect on people. People should recognise that RBNZ is prepared to take whatever action is necessary to ease monetary conditions.”

Dr Oliver Hartwich from The New Zealand Initiative agrees, stating “The RBNZ had no choice– the economic crisis is severe and requires every single policy lever.”

Government stimulus package “not enough” 
The Government has set aside an initial $12.1 billion to spend on businesses, welfare and health care during the crisis. This has since bolstered by increased funding for wage subsidies and a new $6.25 billion Business Finance Guarantee to support SMEs.

Despite this, 44% (4/9) of experts say this won't be enough to salvage the economy, and that further economic stimulus is needed.

According to Croaking Cassandra’s Michael Reddell, “ the Government should be offering a lifeboat (grant) to all businesses and households in a sort of ex-post national pandemic insurance approach.”

Dr Hartwich says that companies need to be able to “hibernate” during the crisis and reactivate once the medical emergency is over.

But he warns that “this will not work if healthy companies go under now. That is why the Government now has to underwrite the whole economy for a limited period of time.”

Property prices expected to drop 
The majority of experts (78%, 7) say property prices will fall over the coming months, as the market takes a hit.

According to Kevin McHugh, Finder’s publisher in New Zealand, "the property market developed momentum throughout February, but the impact of COVID-19 will change all that.

“Widespread job cuts and economic uncertainty will result in pullback from buyers, and this will hurt the market. That said, it could be opportunistic for first time buyers who are looking to get onto the property ladder,” he said.

Here’s what our experts had to say

Jarrod Kerr, KiwiBank: The RBNZ put in a floor for the cash rate to open the door for other extraordinary measures.

Sharon Zollner, ANZ: The economy needs all the help it can get.

Alfred Guender, University of Canterbury: The massive decrease was made to achieve the greatest psychological effect on people. People should recognise that RBNZ is prepared to take whatever action is necessary to ease monetary conditions.

Debbie Roberts, Property Apprentice: This has helped to boost confidence in very scary times as we have all watched the number of COVID-19 cases increase quickly.

Robin Clements, UBS NZ Ltd: Currently the effective lower limit.

Dr Oliver Hartwich, The New Zealand Initiative: The RBNZ had no choice - the economic crisis is severe and requires every single policy lever.

Michael Reddell, Croaking Cassandra: The OCR should have been cut further - to zero in that announcement, and significantly negative now.

Donal Curtin, Economics New Zealand Ltd: It's all hands to the pumps in current circumstances. Cost of credit is far from the biggest moving part but everything needs to help.

Kelvin Davidson, CoreLogic: It boosts confidence and is a clear demonstration that they are serious about the fight.

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