Strong Government balance sheet a good starting point

Finance Minister Grant Robertson. Photo / File

The Government's low level of debt puts New Zealand on more solid ground heading into a pandemic-induced global recession.

The Government's net debt was sitting around 19 per cent of GDP at the end of January, although Finance Minister Grant Robertson said yesterday it will rise above his 15-to-25 per cent debt target as the $12.1 billion support package announced this week keeps some people in jobs and some firms afloat.

ANZ Bank New Zealand economist Liz Kendall said that's a key support for the country's net international investment position, which narrowed to net liability of 54.9 per cent of GDP at the end of December, down from 55.8 per cent of GDP in September.

"In terms of our starting point, I would strongly point to the favourable Government position. That's probably going to blow out, but from a starting point, that looks pretty reasonable internationally," Kendall said.

Stats NZ figures out today showed the country's seasonally adjusted current account was a deficit of $1.88b at December 31, narrowing from a deficit of $2.52b in September. The annual deficit of $9.23b was 3 per cent of GDP, down from $10.19b, or 3.3 per cent of GDP, in September.

The agency said exported goods drove the improvement in the quarter, led by sales of dairy products.

However, its experimental series to capture the impact of the covid-19 outbreak on Chinese exports showed exports in the first 10 days of March were down $200 million on the same period a year earlier. Since February 1, exports to China were $345m lower.

ANZ's Kendall said the balance of payments data showed New Zealand's external balances had been more stable and better contained than in recent years.

However, things were murkier in the post-outbreak environment. While the current account deficit was expected to widen, Kendall said there were too many variables at play to be confident.

"We're in the dark in terms of where we might end up in terms of the balance of payments, GDP, and economic indicators, and the Government position as well," she said.

Kendall said the widespread global impact of the virus will see a race to the bottom for currencies. The kiwi dollar – already at an 11-year low - will come under further pressure "given New Zealand's export dependence and with the RBNZ expected to conduct quantitative easing in the not-too-distant future."

Stats NZ will release December quarter GDP figures tomorrow, which will show the economy's starting point heading into the outbreak. ANZ expects seasonally adjusted quarterly growth of 0.5 per cent, and annual growth of 1.7 per cent.

From there, New Zealand's now looking at a recession, with preliminary Treasury work indicating a 1 per cent contraction of the economy in the year ending March 31, 2021.

S&P Global Ratings today said initial data from China showed the world's second-biggest economy was hit far harder than projected, although a tentative stabilisation has begun. They've downgraded their 2020 global growth forecast to 1-to-1.5 per cent, with risks to the downside.

"An enormous first-quarter shock in China, shutdowns across the US and Europe, and local virus transmission guarantees a deep recession across Asia-Pacific," said Shaun Roache, S&P Global's chief Asia-Pacific economist.

He said the steep declines in official Chinese data are unprecedented.

"This not only confirms a hard hit to China's growth but indicates that the authorities are not smoothing the data."