Five Highlights on Expected Boost for NZ Economy and Testament to Efforts on COVID-19

  • May 05, 2020 NZST
  • Team Kalkine
Five Highlights on Expected Boost for NZ Economy and Testament to Efforts on COVID-19

With no new coronavirus cases for the second day in a row since entering a strict lockdown, New Zealand marks success in effectively containing COVID-19 disease. Containing is an unfit title to applaud the performance of the nation that has actually attained its ambitious aim of eliminating the disease, with no undetected community transmission presently.

The dramatic reduction in New Zealand’s newly confirmed COVID-19 cases has surprised other countries dealing with the disease, learning key lessons from Kiwiland and adapt to the nation’s aggressive approach to break out of this crisis.

In this context, let us quickly scroll through five key highlights testifying anticipated boost to New Zealand’s economy in the coming months:

COVID-19 Curve Crushed in Kiwiland

At the time when other countries are going great lengths worldwide to flatten the coronavirus curve, Kiwiland has not only flattened the curve but crushed it. The nation has been experiencing no new coronavirus cases for the last two days, enabling the government to prepare for Level 2 restrictions as early as next week.

 

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With death toll remaining at 20, the number of confirmed cases in the nation currently stands at 1,137.

New Zealand’s PM Jacinda Ardern believes the reduction in the number of confirmed cases reflects the success of the lockdown rather than actions taken during Level 3 restrictions in place.

The government eased the strict lockdown measures last week from Level 4 to Level 3 to help reopen the economy, and is likely to take a decision on the further loosening of restrictions on May 11.

Importantly, leaders of New Zealand and Australia will possibly consider a travel bubble, which is expected to allow citizens to travel without a 14-day quarantine period between both the countries.

New Zealand's AA Rating Reaffirmed by S&P

One of the world’s major credit agencies, S&P Global has reaffirmed New Zealand's AA rating with a positive outlook, recognising its strong economic position.

Considering the strong fundamentals and robust fiscal position of the nation’s economy prior to pandemic hit, the agency expects the budgetary situation of the country to strengthen after coronavirus subsides.

However, it has forecasted the economy to shrink by 2.4 per cent in 2020, before reviving to 1.7 per cent in 2021 and over 4 per cent in 2022. Additionally, it anticipates the government debt to stay at high levels for some years owing to a large budget deficit. 

S&P’s upbeat assessment came just a week after Moody’s evaluation for the New Zealand’s economy.

Moody’s also reaffirmed the nation’s Aaa rating last month, taking into account the lower government debt in the country, which positions it in a good situation to navigate recovery from coronavirus disruption.

Moody’s believes the nation’s government has a considerable degree of fiscal headroom to improve spending in the coming years to back the economic recovery.

Signs of Revival Visible in Equity Market

The S&P/NZX 50, which lost over 30 per cent in value between 21st February 2020 and 23rd March 2020 during a spike in the number of coronavirus cases, delivered a gain of over 7 per cent in April 2020. Market experts have titled April 2020 as the best month the index has witnessed in over four years.

Besides, the index is trading with a rise of 0.21 per cent at 10,498.35 at the time of writing on 5th May 2020.

The performance of the index is demonstrating signs of revival in the nation’s equity market amidst a sharp decline in the number of fresh coronavirus cases and ease of lockdown restrictions. A further market rally is anticipated in the nation’s equity market in the coming months in the wake of optimistic investors’ sentiments picking up pace.

Opportunities Brewing Up in Different Sectors

The phase of COVID-19 driven lockdown in New Zealand has paved the way for a slew of opportunities in sectors like retail, technology and education.

With the preference of people largely skewed towards online retail amidst lockdown restrictions, online sales increased by 350 per cent in the first week of April this year at the time of Level 3 constraints in place. Moreover, the surge in demand for online platforms and increase in the adoption of technological innovations have heightened the popularity of companies engaged in the technology sector.

Education companies delivering knowledge via online training methods are also at the forefront in the list of potentially attractive sectors. Needless to say, these sectors are unlocking the doors for prospective returns from stocks associated with the related spaces.

Fiscal and Monetary Policy Actions to Support Economic Recovery

Although New Zealand has been so far successful in dealing with the coronavirus cases, the possible economic downturn amidst aggressive lockdown restrictions cannot be neglected. However, the significant monetary and fiscal policy actions taken by the nation’s government and the RBNZ may come to the rescue.

The government has so far announced fiscal measures totalling NZ$23 billion, of which over half is likely to be disbursed by the end of June 2020. Besides, it has also approved a NZ$0.9 billion debt funding agreement with Air New Zealand (NZX:AIR) to make sure continuation of domestic flights, freight operations and limited international flights.

In addition to the government, the RBNZ has also taken robust and tough measures to support economic recovery, which includes reduction of the official cash rate to 0.25 per cent, the establishment of a new Term Auction Facility, lowering bank’s core funding ratio requirement, adopting large scale asset purchases and removing mortgage loan-to-value ratio (LVR) restrictions for the next one year.

In a nutshell, the New Zealand’s performance in controlling the spread and successfully eradicating the coronavirus disease is truly commendable. Although the nation is no exception in facing adverse economic effects from lockdown restrictions, its quick and early decision-making approach may help it revitalise sooner than expected.  

 


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