Strong Economic Fundamentals Anchor New Zealand To Sail Through The Coronavirus Storm

Monday, 6 April 2020, 5:43 pm
Press Release: Kalkine

New Zealand Government seems to be advancing well to deal with the unprecedented global crisis in the face of ‘no-cap’ wage subsidy scheme, which is expected to pump in $4 billion into the economy over the next three months. This came in addition to the economic stimulus package worth $12.1 billion, intended to support New Zealanders from the impact of pandemic coronavirus (COVID-19).

Finance Minister Grant Robertson stated that the New Zealand’s Government is doing what it takes to support the country’s businesses and workers. He added that the Government can do this because New Zealand is one of the best-placed economies in the world to deal with COVID-19, based on the pillars of strong economic fundamentals and low Government debt.

While the country entered Alert Level 4, the New Zealand Government steadfastly responded to not only adopt quarantine measures but also bolster the fiscal stability of the nation and its people.

• Government Uses Its Balance Sheet to Protect the Cashflows of Businesses

The analysts are forecasting massive economic shock following the nation-wide lockdown and suspension of the non-essential services. However, the New Zealand Government seems to be well-prepared to cushion the blow.

Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr stated: New Zealand’s financial system remains sound with strong capital and liquidity buffers.

Moving forward amid the global financial crisis, the NZ Government launched Business Finance Guarantee Scheme to boost economy and offer financial arm to the New Zealand businesses. Under this plan, the small and medium-sized firms with the annual turnover between $0.25 million to $80 million can apply for loans up to $0.5 million for up to three years. It is worth noting that in case of any loan default, the Government would bear 80% loss, while the 20 % would be borne by the bank.

• Government: New Zealanders Income Is The Top Priority

Treasury has warned that New Zealand job market might hit the rock bottom with the chances of unemployment rate striking double digits. But in response to this chaos building around the job market, the New Zealand Government removed the limit on its wage subsidy scheme, and raised benefits and tax changes to support cashflow. The change could cost $9.3 billion on the assumption that 50 percent of businesses would access the scheme. It is in comparison to the previously estimated cost of $5.1 billion in the normal scenario of wage subsidy scheme.

But the Finance Minister Grant Robertson reminded that $9.3 billion is just an estimate as there is no cap placed to support workers and businesses. He also stated that presently the Government’s priority is to ensure that the New Zealanders continue to receive income in some way through this period of global crisis.

The scheme is articulated to retain the employment relationship between the employers and their staff during Covid-19 lockdown. It would support businesses concerning payment to employees, whereas the support workers would continue receiving income even if they are not able to work.

• Reserve Bank of New Zealand reduced cash rate from 1.0 percent to 0.25 percent

Reserve Bank of New Zealand (RBNZ) has also acted promptly as the negative implications of coronavirus continue to drive dire economic scenario. The Central Bank slashed official cash rate (OCR) by 75 basis points to 0.25 percent on 16 March 2020, seeking to stabilize the worsening economic scenario. Further, the Monetary Policy Committee unanimously voted to maintain OCR at this rate for at least next 12 months.

The Central Bank’s governor expressed confidence in the financial system of the nation to beat the impact of coronavirus. The body also signaled to provide further stimulus through Large Scale Asset Purchase programme, if required.

• Outlook

Financial wellness has become an overbearing concern within the entire national boundary. The present state of the economic and job scenario appears baffling as businesses operations are either reduced or shut. However, New Zealand Government seems strong headed and financially stable to combat the economic impact of the coronavirus in the country. While the duration of the outbreak yet remains a concern, a joint effort and positive nudge is what a nation might need to emerge out of the crisis stronger and healthier.

At the time of writing on 6th April 2020, the S&P/NZX 50 is trading ~2 per cent down at 9,739.

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