Making the most of it might be smarter than trying to fathom reasons for the NZX’s big bounce-back

Here’s a  conundrum:  thousands  of  New Zealanders   are  losing   their  jobs,  yet the  NZX top  50 index is  back  almost  to its  peak   of 12,065  it  hit  on  February 20.

Opposition  politicians  say  NZ is facing an economic disaster.  As  many as  150,000  jobs  could be  lost.  The  Reserve  Bank   believes unemployment  will rise to  9%.

The  sector which  was  the country’s biggest foreign exchange earner has been  shut  down. International education which brought  in  $5bn   has also gone down  the plughole. And   all  the government is   doing is  throwing  billions  at the  problem  in  wage subsidies.

Of  course  there is  relief that the country has succeeded in  quelling Covid-19  under the  leadership of  Jacinda  Ardern   (for  which   she is  admired  around the  world),  and has  moved to  alert level  one.

Business confidence is bound to falter when govt and RBNZ have differing economic outlooks

Government  ministers  are adamant  New Zealand’s  economic  fundamentals are solid,   unemployment  is at a  record low,  growth is  faster  than  in Australia,   and  the  surplus in  the government accounts and low debt present  further opportunities to strengthen the economy.

Yet,  across the road  from the Beehive,  the view from the  Reserve  Bank  seems  very different.

In August  the  RBNZ  slashed  the official cash rate to 1%  and talked of the prospect of another rate  cut in November — on  the  basis a lower official cash rate is necessary to continue to meet its employment and inflation objectives.

The  bank  pointed to low business confidence and dampened business investment in 2018 which had remained weak in mid-2019. If sentiment remained low, growth might not increase, it  said,  an anticipated  over the  medium term.

The  RBNZ  also contends  the risks    for  the  NZ  economy  are so great  that in in the interests  of  financial  stability, core capital ratios  for the   country’s  big trading  banks   have to be  raised.