The persistence and size of the economic shock due to coronavirus is incomprehensible. The disease is spreading rapidly in dozens of countries. The bottom line is that while there is too much uncertainty to be certain about outcomes, this economic shock could cause lingering pain and perhaps leave deep scars – far larger than the other post-war pandemics. Let us now have a look at the steps adopted by the government of New Zealand.
Measures taken by the Government of New Zealand
The Government of New Zealand announced a spending package of NZ$12.1 billion ($7.3 billion), equivalent to 4% of GDP in an attempt to fight the effects of COVID-19 on the economy; approximately NZ$5 billion will go toward wage subsidies for businesses, NZ$2.8 billion toward income support, NZ$2.8 billion in business tax relief, and NZ$600 million toward the airline industry.
- The Government of New Zealand also announced that retail banks will offer a 6-month principal and interest payment break for small business customers and mortgage holders whose incomes have been impacted by the economic disturbance from coronavirus;
- The New Zealand government and the banks will implement a NZ$6.25 billion ($3.62 billion) Business Finance Guarantee Scheme to support small and medium-sized businesses. It will comprise a cap of NZ$500,000 per loan and will be available to firms with a turnover in the range of NZ$250,000 and NZ$80 million per annum.
The government has taken conclusive actions during this pandemic to sustain the blow for workers and businesses. The government wants its businesses to remain solvent to aid economic retrieval as it moves on from this pandemic.
The new measures include the following:
- $60 million estimated annual savings to business each year from changes to the tax loss continuity rules;
- Greater flexibility for affected businesses affected to meet their tax obligations;
- $3.1 billion tax loss carry-back scheme;
- $25 million in the next 12 months for further business consultancy support;
- Measures to support commercial tenants and landlords.
Visitor arrivals saw a significant fall in February and have dropped to zero currently under the border closure. Some large companies have announced their plans for pay cuts. The number of Jobseeker Support beneficiaries has jumped sharply. Total wage subsidies payments reached $8.9 billion on 9 April, benefitting 1.4 million people. The Government announced a further stimulus package is in development to provide support through the next phase of the response.
It can be said that the impact of COVID-19 outbreak has been felt across industries and the negative impact was also witnessed on the sentiments of consumers. The market players are also worrying about global growth. Generally, the equity markets are negatively impacted if global growth is questioned. In uncertain times, the market players prefer to allocate their funds towards safer asset classes and some of the investors even liquidate their holdings in equity markets.
However, stimulus packages have been announced which could provide some help in the recovery moving forward.
We will now have a quick look at five different sectors and the impact of COVID-19 on them:
Most of the companies providing agriculture and food products have been classified as essential services and, therefore, would have minimal impact on them. However, the future for agricultural market situations has become progressively uncertain as the potential effect of COVID-19 on the global economy evolves. There is substantial uncertainty about the economic effect the virus will have on the country’s export trade outlook.
Healthcare sector of New Zealand can provide some hope for New Zealanders. The government of New Zealand has placed aged care centres and retirement villages under essential service and, thus, the companies operating in these businesses will continue to operate. Companies like Arvida Group Limited (NZX: ARV) and Summerset Group Holdings Limited (NZX: SUM) will remain operational. Another company like Fisher & Paykel Healthcare Corporation (NZX: FPH) has been classified as an essential service.
Tourism industry has been severely impacted by the pandemic as there is a huge decline in tourist numbers. Auckland International Airport Limited (NZX: AIA) and Air New Zealand Limited (NZX: AIR) have even suspended their earnings guidance for FY 2020. Due to the travel restriction on many international cruises and flights, there has been a huge drop in tourist numbers, and the impact has been felt across hotels and airlines.
Measures taken by Reserve Bank of New Zealand
- On March 16, the Reserve Bank of New Zealand cut the official cash rate by 75 basis points to a record low of 0.25% and pledged to keep it at this level for at least 12 months;
- On March 22, RBNZ announced that it will purchase up NZ$30 billion ($17 billion) of government bonds in the secondary market in the next 12 months;
- It will pursue to buy NZ$750 million bonds a week throughout a range of maturities, by an auction process;
- It also reduced banks’ core funding ratios from 75% to 50%, which will help banks to make the credit available.
There has been a significant decline in foot falls in retail stores and malls because of social distancing. This has led to a fall in demand and the customers are now changing their preferences to online channels. However, grocery saw a huge demand as customers continue to consume goods which are of daily use. The demand is expected to rise once the lockdown is over.