CoronaVirus and Droughts – the state of the economy

They're talking "Recession"...

It’s that word that we all despise again. The last one almost crippled our country; however, that was a global recession. BNZ Economists are talking of a domestic recession due to the impact of the CoronaVirus and widespread droughts throughout New Zealand.

The forestry sector is suffering with an inability to export wood to China (our largest wood importer) amid the CoronaVirus epidemic as well as the Chinese New Year. Forestry has cooled significantly and what should concern everybody is that it accounts for 7% of New Zealand’s total GDP.

While 7% may seem small, it’s double what our dairy industry contributes (being only 3.5% of GDP). Economists cite that previously GDP has dropped 0.5% to 1.0% during widespread droughts, the result of such dramatic economic turmoil is the increasingly likely domestic recession.

What does the recession word mean for property investment and buyers though? Well, the Reserve Bank will likely attempt to keep the status quo and prop up our economy. However, should the CoronaVirus outbreak continue, China will remain at 50% strength. In 2018 our exports to China were worth $16.6billion dollars – if the outbreak continues at it’s current pace or worsens then New Zealand could be looking at a loss in exports in the billions of dollars. The knock-on effect of such a dramatic drop will be significant and could see banks tighten up on lending restrictions.

Property in general would likely see a cooling of sorts, but especially in the investor market where it’s already rumoured to be more difficult now than two years ago in terms of lending criteria and bank restrictions. This is despite the Reserve Bank continuing to try and prop up the economy through low OCR rates.

Only time will tell what the result is going to be… will it be a significant impact leading to domestic recession? or will it be a small-scale impact as forecast  by the RBNZ?