Economy moving towards ' longer-lasting shock' due to coronavirus - Finance Minister

The impact of the global coronavirus outbreak will be harder felt by New Zealand's economy than earlier thought, the Finance Minister predicts.

The impact of Covid-19 is moving towards a "longer-lasting shock with global impact feeding through to the economy for the rest of 2020", Grant Robertson said today. 

It is a step up from earlier predictions that the economy would bounce back in the second half of the year.

Grant Robertson last week outlined  three scenarios  New Zealand's economy may face due to coronavirus. 

Mr Robertson's earlier said analysis of the economic impact had focussed on a scenario where the virus was "contained and there is a short, sharp impact on the global economy in the first half of 2020, before activity returns to normal levels".

Grant Robertson.

However, the Government  already expected movement  earlier this month, possibly in the second half of the year by the impact of coronavirus.

In Parliament today Mr Robertson said the OECD interim economic outlook showed global growth prospects remained "highly uncertain" due to the coronavirus outbreak. 

"The OECD has downgraded its forecast for global growth this year by half a percentage point to 2.4 per cent. In its downside scenario, in which the outbreak lasts longer and is more intensive, the OECD suggests global growth could fall as low as 1.5 per cent in 2020."

Mr Robertson said New Zealand was "moving more towards the second scenario now, which is based on a longer-lasting shock with global impact feeding through to the economy for the rest of 2020".

He said planning for that scenario and further scenarios meant the Government "can act swiftly and decisively as the impacts of the coronavirus are felt on the global and domestic economy".

"These responses will include sector and regional - specific ones."

On Thursday, Mr Robertson said the second scenario "has the domestic economy experiencing a longer period of slower growth – across the whole of 2020 – as a result of the global effects of coronavirus".

"Under this scenario, global uncertainty about the worldwide spread and containment of the virus causes deeper impacts on directly exposed sectors, as our trading partners feel the effects of coronavirus."

"We would expect to experience a decline in visitor arrivals from other markets outside of the temporary travel ban due to the economic impact that the virus has in other countries – like what we’re seeing now with South Korea.

"These external effects lead to broader indirect impacts across the domestic economy, with business and consumer confidence falling and the subsequent impact on investment and spending decisions."

The third scenario the Government was planning for was the virus becoming a global pandemic and causing a global downturn or recession. 

Direct income support measures could be implemented in the third scenario, with tax cuts a possibility or one-off cash payments. 

"All of those options are on the table, but it is for a scenario that at this stage we are not predicting," Mr Robertson said.