SINGAPORE – New Zealand is forecasting a strong recovery in its economy in the three months ending in September, Treasury Secretary Grant Robertson said Friday.
The country fell into steep recession – two consecutive quarters of negative growth – after GDP contracted 12.2% quarter-on-quarter between April and June, broadly in line with the decline economists expected in a Reuters poll . This followed negative growth of 1.4% in the March quarter.
Between April and May, New Zealand enforced a strict nationwide lockdown for several weeks to help slow the spread of the coronavirus. That meant most people had to stay inside and all non-essential businesses were closed. The infection rate in the country of around 5 million people has remained relatively low with 1
Robertson told CNBC’s Squawk Box Asia that the June quarter data was “expected” and that activity picked up again in July and August as stores reopened and people went back to work. The virus currently appears to be relatively under control in the country.
“We saw that we came out of it relatively well and relatively quickly, so we expect strong results for the September quarter,” he said.
To help companies cope with the aftermath of the national lockdown without laying off staff, the New Zealand government launched a wage subsidy program that Robertson said protected 1.7 million jobs. More than New Zealand dollars ($ 8.81 billion) were reportedly paid out under the program.
This program is not expected to be extended any further unless New Zealand is forced to reintroduce strict lockdown levels in the future.
“We are now focusing on, when our economy is relatively open, to support certain sectors in which we have seen more engagement – for example in our tourism industry,” Robertson told CNBC. He explained that programs are still in place to support people who have lost their jobs and help small businesses by giving them access to interest-free loans.
New Zealand is preparing for an election next month that could serve as another referendum on the leadership of Prime Minister Jacinda Ardern.
In its pre-election economic and fiscal update, the New Zealand Treasury Department said net debt is expected to increase in the coming years, impacting the Pacific nation’s long-term recovery. At the end of June, net debt was estimated at 27.6% of GDP and it is expected to rise to 55.3% of GDP by fiscal year 2024.
Robertson said New Zealand’s balance sheet remains resilient and net debt will peak at the above levels. He said the coronavirus pandemic is a “one-in-100-year” shock to the global economy, with all governments grappling with finding ways to financially support their people and businesses.
“Of course, once we are all established we must continue to be very careful about our budgetary management,” he said. “We found a way forward to keeping debt under control and reducing it over time.”
“But like all governments, I have to balance that by making sure we keep investing in our public services, as well as in health and education, which we need especially at a time like this. And helping people through the uncertainties,” added Robertson . The country will be able to absorb further shocks to the economy.
Air New Zealand
In August, New Zealand’s national carrier reported its first annual loss in nearly two decades. A government loan of NZ $ 900 million ($ 596.34 million) was reportedly planned to help weather the pandemic that has hit the travel and tourism sectors worldwide.
According to Robertson, Air New Zealand remains a very important part of the country’s economy and plays a vital role in its economic development. The government plans to work with the airline in the coming months to ensure its future positioning.
“Like all airlines around the world, they are tremendously challenged right now. They have started drawing on the loan we have offered to support them during this time. There have been a significant number of layoffs within the airline I have adjusted to the much smaller volumes of travel they are dealing with, “he said, adding that the government intends to remain the airline’s majority shareholder.