The coronavirus continues to have a tumultuous effect on global markets, and New Zealand is certainly not immune. Global markets have experienced their worst losses since 1987, with an automatic shut-off triggered multiple times on Wall Street due to almost unprecedented falls and volatility. Billions of dollars have been wiped off the New Zealand sharemarket on multiple days, intermingled with frantic recoveries and lots of guesswork about how to proceed.
With so much money wiped from global markets, and entire national economies contracting before our eyes, a global recession almost seems like an inevitability. According to credit agency S&P Global, the world is already in a recession, with damage in China spreading to major markets in the United States and Europe. No single country will be immune to the downturn, which will definitely last for months and affect billions of people around the world.
According to S&P Global's Chief Economist Paul Gruenwald, "The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilization has begun. Europe and the United States are following a similar path, as increasing restrictions on person-to-person contacts presage a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year."
The local situation in New Zealand is changing everyday, with talk of a recession almost completely normalised. BNZ were the first bank to predict a recession back in February, with most experts now forecasting a major downturn that will last months and possibly longer. While the situation is incredibly broad and fluid, the tourism, hospitality, and events management sectors have already seen significant losses. The longer the situation continues, the harder it will be for specific industry sectors to remain isolated.
According to BNZ head of research Stephen Toplis, "We are thus now formally forecasting at least two quarters of negative growth... This downturn is fundamentally a supply shock which, in turn, is creating a demand shock. Its root cause is Covid-19 so how the behaviour of individuals, globally, to this shock evolves will ultimately determine the economic path from here on in. Policymakers can only hope to smooth the process." Indeed, uncertainty lies at the heart of the world's current problems, with global economies only likely to find stable ground when medical and research communities develop working solutions to deal with the pandemic.
ANZ chief economist Sharon Zollner has come out in recent days calling for a swift response from the Government: "The risk that unconventional monetary policy will be required is lifting. And it's time for the Government to up the ante on fiscal policy. The good news is that there is plenty of firepower to do this. Scrapping this year's minimum wage rise seems like a no-brainer given pressure on businesses, and there are plenty of other short- and long-term policy options that could help." In such worrying and uncertain times, New Zealand and other global economies need certainty now more than ever before.