Election 2020: Prefu – The impact of Covid-19 on New Zealand’s economy is not as bad as feared, but ‘deep uncertainty’ looms

The opening of the government books by the Treasury before the elections reveals a better picture of the economy at this time than was initially expected.

Today’s figures show that the accounts for the year through June confirm that tax revenues and debt were better than expected.

However, going forward, the economic situation in some areas is worse than anticipated, as New Zealand enters a period of what Treasury Secretary Caralee McLiesh called “deep uncertainty”.

In fact, speaking at the presentation of the Pre-Election Fiscal and Economic Update (Prefu) this morning, Finance Minister Grant Robertson warned that “uncertainty is the product that the world shares in abundance.”

Despite this, unemployment estimates have been revised significantly downward and have been delayed for nearly two years, today’s figures reveal.

Also, the short-term economic recovery had been stronger than the Treasury and many economists had forecast in the May budget, Robertson said.

The Treasury expected the unemployment figure to reach nearly 10 percent this month, but today’s figures show that the highest level unemployment is expected to reach is 7.8 percent in March 2022.

“These are signs that the New Zealand economy is robust,” Robertson said this afternoon.

Unemployment is expected to remain higher for longer

But the data also shows that unemployment will remain higher for longer, which, according to Infometrics senior economist Brad Olsen, will make it harder for the unemployed to find long-term work.

Bagrie Economics chief economist Cameron Bagrie noted that today’s figures show that the number of people projected to be in the job search program and the emergency benefit in 2024 is 246,000.

That compares with 180,000 in the May budget and reflects a “slower recovery.”

Today’s figures also reveal that the government deficit this year is lower than expected; $ 23 billion in the red compared to $ 28 billion disclosed in May’s budget.

However, that number is higher in the long term, reaching a deficit of $ 12 billion in 2024 according to today’s figures; That figure was expected to be just under $ 5 billion in May.

Robertson said this was the “price we pay” for unprecedented levels of public spending, such as the wage subsidy scheme.

The overall level of debt expected by the government has increased slightly compared to budget estimates.

New Zealand at ‘pickle point’

Bagrie said Prefu showed New Zealand is at a “lean point.”

“Spending moderation is not enough to materially reduce debt and return to surplus,” he said, adding that deficits are projected for 15 years.

“Either we need to strengthen the economy or taxes are going to go up.”

Covid-19 is still expected to have a significant cost to the economy, but that cost, according to the Treasury, is not as bad as expected.

Treasury officials had expected tomorrow’s GDP figure to reveal a 23.5 percent drop over the period since New Zealand entered lockdown.

But his updated figures show that he now expects that figure to be 16 percent.

Although better than expected, it is still the biggest single drop in economic growth in New Zealand history.

But in the long term, the impact will be worse than previously expected, this is due to the fact that the world economy is expected to do worse than expected.