NZ Gearing Up For Level 2 Alert: Economic Reboot & Theory Versus Realistic Approach

Signs of euphoria appear to be surfacing in the New Zealand landscape, while the economy is clearly headed towards a more profound revival of operations with phased removal of lockdown restrictions. The government, as a part of its staged reopening plan, indicated that the decision on shifting to Level 2 Alert would follow the cabinet review on Monday, 11 May 2020.

A sharp decline in the infection rate is boosting confidence for lockdown lifting while paving the way for economic restoration. The Ministry of Health reported no new Covid-19 cases or deaths for the first time on 4 May 2020 since the strict countrywide lockdown started more than a month back.

Life under the reformed less-intense restrictions at Level-2 is expected to be more outgoing and sociable with the expected reopening of public venues, schools, and domestic travel. Furthermore, although mass gatherings will reportedly be impermissible to evade the second wave of infection, the gathering size may increase with protocols in place to record the attendee’s details. Meanwhile, the business activities may soar with the customers back in action.

Given the backdrop, let us have a closer look at how the upcoming Level 2 is anticipated to play a considerable role in opening avenues to kickstart the economic activities and overriding the cynical theories through a more realistic approach.

Reboot for the Kiwi Economy

The government has already deployed several fiscal and monetary measures to soften Covid-19 blow and evade economic meltdown. Level 3, which was primarily about economic reopening, has seen snowballing in economic activities, which are further expected to spike under the eased restrictions.

The retail sector seems to be picking up some momentum under Level-3 alert with online retail sales recording an increase of over 300 percent in some businesses. Alcohol sales has surged in the Level-3 alert; however, the hospitality and electronic transactions are still reeling through the pandemic effect.

The trade digitization along with demand rebound is expected to give a positive nudge to the advancing business operations in the eased alert level, expectantly disposing of the severe economic fallout chances.

Lens through the Theory Vs Realistic Approach

Market players are closely eyeing the economy recovery rate for gauging the revival of the business operations. The past historical evidence when studied in the light of new tech regime suggests that the economy is bound to start back with potent force, although sustainability of the current virus containment success and the possibility of the second wave of virus outbreak is to be closely monitored.

The predicted rise in unemployment rate, however, remains one of the major concerns for the policymakers. The government, through the varying tax reforms, wage policy and other significant policy initiatives, is putting efforts to ensure the revival of the small and medium-sized businesses.

Undoubtedly, multi-policy approach is considerably required for preventing the grim economic situation in the future. The fiscal reforms coupled with monetary policy initiatives are expected to accentuate the employment opportunities, though some sort of headwinds may be observed in the job sector till the time businesses are not able to establish their footprint back in the market.

The market believes that the effective restructuring of the debt system, new economic paradigm and the trade revival bear the potential to beat down the impending debt crisis.

Besides, socioeconomic reforms through the practical integrated efforts are at the core to restarting the economy.

Leading real estate firm Bayleys is entering into marketing tourism properties through the acquisition of specialist Resort Brokers business. Meanwhile, Tower Insurance has started helping the customers with restructuring their insurance, which might be needed considering the financial pressure built in the past few months.

Buoyant Market Performance

While the NZ economy has been drawing international attention making great strides in stepping down the Alert Levels, the equity market seems to be sailing smoothly through the storm. Notably, S&P/NZX 50 Index has weathered the crisis decently, generating a 6.93 percent QTD return as on 4 May 2020.

The oozing optimistic sentiments with the flattening Covid-19 curve in April sent many stocks rallying during the month including SkyCity Entertainment Group Limited (NZX: SKC), Restaurant Brands New Zealand Limited (NZX: RBD), and Tourism Holdings Limited (NZX: THL).

Besides, the investors locked-in their month gains by selling the blue-chip stocks that have surged substantially such as Meridian Energy (NZX:MEL) and Fisher & Paykel Healthcare Corp Ltd (NZX:FPH).

Several market players tapped the new defensive investment avenue of Online and Tech businesses, including Pushpay Holdings Ltd (NZX: PPH), and Solution Dynamics Limited (NZX: SDL), among others.

Centric to medical cannabis, Cannasouth Limited (NZX: CBD) has witnessed a sharp rise of 16 percent in its stock price to $0.50 since 28 April to 4 May 2020. In the same period, stock of electricity generation and retailing company Trustpower Limited (NZX: TPW) rose by 4.47 percent.

While the NZ economy is gearing up for economic reboot backed by strong policy initiatives, structural thematics and revival in equity market, people need to stay cautious in practicing social distancing norms amidst eased restrictions as some economists are largely wary of the second wave of virus.

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