Decisions, decisions

Another week begins and another big decision looms for the government as it reviews whether to move Auckland down to COVID alert level one from Thursday. No doubt, there will be many factors for Cabinet to weigh, but the news since Alert Levels were last reviewed has typically highlighted New Zealand’s good position internationally. The total number of active cases is now down to 41 (eight are community cases) and, according to the Ministry of Health, no-one in the country is currently hospitalised with the virus. By contrast, many of the overseas headlines are scary. Last week, lockdown measures were re-imposed in parts of Western Europe, the three largest Canadian provinces declared they were in a second wave and UK officials said things were ‘heading in the wrong direction.’ And of course, Friday saw the news that President Trump has been diagnosed with the virus…

Data out last week continued to suggest that the NZ economy is holding up better than many feared, though it has still taken a sizable hit. Last week’s building consents data showed construction broadly holding up to its pre-COVID levels, and we saw a solid lift in business confidence. Mobility data seems to suggest that the time Auckland has been above Alert Level 1 hasn’t reduced activity as much as anticipated. Still, it’s not entirely smooth sailing for the domestic economy, and as we tick over into a new month and get that little bit closer to summer, it’s a reminder that the closure of the border is going to put a big dent in economic activity, even if we do end up with a trans-Tasman bubble at some point (see our chart of the week below).

Border restrictions aside, New Zealand is in a comparatively good position globally, so its notable that the RBNZ has been more explicit in signalling the potential for a negative policy interest rate. Central bank policy releases this week from two of the more sceptical central banks on negative policy rates – the RBA and the US Federal Reserve – will be worth perusing for their favoured next steps. We are very much operating in an unprecedented environment, and it’s fair to say that central banks – like the rest of us – have differing opinions on the right responses. Interesting times indeed.