Biggest recession since Great Depression, economists warn

Western Bay business leaders believe the region will fare better than others during the recession. Photo / File

New Zealand is facing the biggest recession since the Great Depression, economists say, but despite the gloomy outlook, Western Bay business leaders believe the region will fare better than others.

The news comes hard on the heels of the Government's pre-Budget warning that debt levels will skyrocket as it prepares to re-ignite the country to combat the economic impacts from Covid-19.

ASB chief economist Nick Tuffley. Photo / File

ASB chief economist Nick Tuffley estimated by the end of 2020 the economy would be 7 per cent smaller than the same time last year due to Covid-19.

Following the Global Financial Crisis the economy shrank by less than 3 per cent over 18 months, he said so ''this is undoubtedly the deepest recession we have had either since World War II or the Great Depression''.

''It is a really unnatural time and people have gone through a really sharp shock ... which we've never really seen happening in history before.''

He said debt could rise to 50 per cent of GDP over the next four years and take decades to pay down.

A Westpac May 2020 Covid-19 special edition said it expected the Government's net core crown debt to rise to about $180b by 2024.

''New Zealand is now in a deep recession.''

The report estimated the unemployment rate would also rise to 9.5 per cent in June – the highest level in 27 years.

Chief economist Dominick Stephens said basically ''we were already actually on an unsustainable fiscal path because of the ageing of the population''.

Westpac chief economist Dominick Stephens. Photo / File

''We all know that national superannuation is going to become unaffordable and that has just become a whole lot worse.''

He said there would be a limit to how much stimulus the Government could comfortably provide and the rescue measures would end up costing about $37b.

The Government could borrow at .016 per cent interest but that could change if New Zealand's rating was downgraded.

''I think the Government should be borrowing heavily right now to help the economy get through this crisis. But the key to that is to make sure he measures taken now are temporary.

''So, for example, giving everybody a few hundred dollars to stimulate spending, that's fine because it doesn't commit future governments to anything but giving everybody an extra $25 per week is not as good an idea.''

But Stephens was expecting the recovery would be faster than the GFC because that scenario involved a banking crisis.

Priority One chief executive Nigel Tutt said there had been a steep decline in productivity and that would have ongoing consequences.

Priority One chief executive Nigel Tutt. Photo / File

''It's still early though, we don't know how deep it will be or how long it will take to recover.''

Rising Government debt was a concern but shouldn't stand in the way of immediate actions, he said.

''Strong support from Government is absolutely necessary – Kiwi's should regard themselves as fortunate that we have options as a country.

''The Western Bay will weather the storm better because our major industries are much less affected than other regions of NZ; while confidence will be down, at least we have New Zealand's strongest port, large employers in healthcare and horticulture, and exporters in a good position.''

Tauranga Chamber of Commerce chief executive Matt Cowley said some of the Government funding should support the initial pain-points to keep as many people employed as possible.

Tauranga Chamber of Commerce chief executive Matt Cowley. Photo / File

''The wider Bay of Plenty region has strong export sectors including horticulture, agriculture, fisheries, and forestry. Due to our population demographics, the inevitable increase in the Government's health spending will benefit our economy and community.''

National leader and Tauranga MP Simon Bridges said if the economists were correct, the figures were eye-watering and could work out at more than $50,000 in additional Government debt per household.

National leader Simon Bridges. Photo / File

"The highest Government debt New Zealand has ever had was the $62 billion we had immediately prior to the crisis.''

This newspaper reported on Saturday that the number of people receiving Jobseeker benefits in the Bay of Plenty has increased by more than 2600 since the lockdown came into effect on March 25.

Ministry of Social Development figures as at May 1 showed there were 18,069 people on Jobseeker Support in the Bay of Plenty, that's 2622 more than as at March 27 — a jump of about 16.9 per cent in five weeks.

The figures rank Bay of Plenty as the second-highest region in New Zealand for needing Jobseeker Support, following behind the Auckland metro region's 60,400 Jobseeker beneficiaries.

The Minister for Finance Grant Robertson has been approached for comment.