Prime Minister Jacinda Ardern has announced plans move to alert level 1 after New Zealand reached zero active cases of Covid-19. Photo / Getty Images
Prime Minister Jacinda Ardern has announced plans move to alert level 1 after New Zealand reached zero active cases of Covid-19. Photo / Getty Images
The stock market soared and economists lifted their outlook for recovery on news that New Zealand will move to Alert Level 1 tonight.
"We think the move to level 1 will provide the economy a significant boost," wrote BNZ chief economist Stephen Toplis, this afternoon.
"A move to level 1this week was certainly not in our original set of forecasts. So the post-lockdown bounce we had initially anticipated is occurring earlier."
On that basis the BNZ has adjusted its forecasts and now sees GDP growth returning to pre-Covid levels more than a year earlier - in the second quarter of 2022 as opposed to the fourth quarter of 2023.
ASB chief economist Nick Tuffley also saw reason for cheer.
"[The] shift down to alert level 1 and associated shift up in the economy's speed limit, will join a string of other news suggesting the NZ economy is faring a little better than most expected in the post-lockdown world," he said.
"A move from level 2 to level 1 would see NZ's economic capacity lift from 92 per cent to roughly 95 per cent."
Reason for cheer: ASB chief economist Nick Tuffley says the economy is performing better than expected. Photo / File
But before this afternoon's news on Covid cases and alert levels, share market investors were already in an upbeat mood.
The NZX-50 share index soared more than 3 per cent per cent today, initially taking its lead from upbeat Wall Street investors, but gaining further as the good local news broke.
This rise followed a big spike on Wall Street on Friday, after US job numbers came in much stronger than expected.
It takes the local market back to just 0.6 per cent down from where it started the year.
US markets and New Zealand's NZX-50 fell about 30 per cent as the world went into lockdown in late March.
Since then they have rebounded dramatically, with the US S&P500 and the NZX now up 42 and 36 per cent respectively since their low points in March.
The US was buoyed by better than expected job numbers on Friday but has also risen on enormous levels of fiscal stimulus from government and monetary policy stimulus from the central bank.
But many analysts warn that a second wave of the Covid-19 pandemic could yet cut the rally short.
Locally economists remain cautious about the difficult economic path ahead - particular as wage subsidies run out and unemployment rises.
"We'd be remiss in our role as purveyors of the dismal science if we didn't warn about the come down," Tuffley said.
"First, we're currently in the midst of the release of pent-up lockdown demand that clearly won't last forever.
"Second, the stimulus drugs are probably having their peak effect right now, but we'll have to be slowly weaned off them as we ratchet down through alert levels and conditions normalise."
ASB was sticking with its current forecasts for now, but warned that they are now at risk of revision in a positive direction.
They include a 6 per cent fall in 2020 GDP and a 9.4 per cent peak in the unemployment rate.
BNZ's Toplis also warned that the rise in unemployment would be grim over coming months.
"The fact the Government believes up to 230,000 businesses, employing over 900,000 people, might be eligible for further subsidy is in and of itself an indication of just how weak the economy remains," he said.
