Coronavirus: New Zealand pulls out all stops with $10.3 billion stimulus to rescue economy amid slowdown

The NZ$12 billion (S$10.3 billion) package was larger than that implemented during the global financial crisis. PHOTO: REUTERS

WELLINGTON (REUTERS) - New Zealand on Tuesday (March 17) announced one of the largest per capita stimulus packages in the world, amounting to 4 per cent of its gross domestic product, in an attempt to soften the negative economic impact from the coronavirus outbreak.

The NZ$12 billion (S$10.3 billion) package was larger than that implemented during the global financial crisis, and bigger as a proportion of GDP than those announced by countries like Australia and Singapore, the authorities said.

"The government is pulling out all the stops to protect the health of New Zealanders and the health of our economy," Prime Minister Jacinda Ardern said in a news conference.

The New Zealand stock exchange reacted swiftly to the fiscal stimulus, with the bourse reversing a fall of more than 5 per cent. The main index was flat at 0220 GMT.

The New Zealand dollar rose 0.3 per cent to US$0.6061 (S$0.85).

The fiscal package included wage subsidies, tax cuts, income support, investments into health and support for an aviation sector hit hard by travel restrictions.

"The economic stimulus is large, targeted to those at risk and will start from today," said Citi economist Josh Williamson. "These features give the New Zealand government's support package the best chance at helping businesses and household absorb the economic shock from the coronavirus outbreak," he added.

Finance Minister Grant Robertson said preliminary Treasury department forecasts showed annual growth was expected to contract by 1 per cent year on year in March 2021 if the package is implemented, a slower contraction than the 3 per cent forecast without the support.

The stimulus will substantially increase debt, Mr Robertson said, with core government debt now expected to exceed current New Zealand's target of 15-25 per cent of GDP.

"We will have an extended period of deficits and our debt as a country will have to substantially increase," he told lawmakers, adding a recession is "almost certain.

New Zealand's central bank eased rates by 75 basis points following an emergency meeting on Monday, as it prepared for a significant impact on the economy.

'GO HARD, GO EARLY'

Ms Ardern has warned the economic impact of the coronavirus could be greater than the global financial crisis. New Zealand, which has reported 11 coronavirus cases and no deaths, was among the first countries to impose mandatory self-isolation for all visitors and ban all big public gatherings.

The fiscal package includes around NZ$8 billion for wage and income support, NZ$2.8 billion in business tax changes to free up cash flow, and a NZ$500 million boost for health services.

An initial NZ$600 million support package for the aviation sector would be followed up with separate measures for Air New Zealand, which has warned of job losses after slashing flight capacity, Mr Robertson said.

The fiscal injection is part of New Zealand's "Go hard, Go early, Contain Covid-19' strategy", he said. "This is not a one-off package, it is just the beginning."

Join ST's Telegram channel and get the latest breaking news delivered to you.