It is now probable – not just plausible – that New Zealand's economy will enter a recession, BNZ's economists say, and we shouldn't expect the Government to be able to do anything to turn it around.

In a market update, head of research Stephen Toplis said a best-case scenario would result in growth a "smidgen above zero" in the first two quarters of this year.

"In contrast, the downside risk is building by the day. We are thus now formally forecasting at least two quarters of negative growth," he said.

He said it was not like a cyclical downturn that would continue to spiral downward without intervention.

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"What can the Government or central bank do to stop a virus spreading?

"We can't stress enough, though, that this is not a cyclical downturn so the economy won't react to standard cyclical monetary and fiscal policy responses. This downturn is fundamentally a supply shock which, in turn, is creating a demand shock. Its root cause is Covid-19 so how the behaviour of individuals, globally, to this shock evolves will ultimately determine the economic path from here on in. Policymakers can only hope to smooth the process."

There would either be an enforced end or a natural end of the outbreak, he said, and it was likely to happen in no longer than 12 or 18 months. "The important thing to bear in mind is that it will finish."

The Government would have to be the "ambulance at the bottom of the cliff" working out how to help people make it through the disruption so they could get back to normal afterwards, in much the same way it sometimes helped farmers through a drought.

That might mean giving provisional tax relief to businesses who had suffered an income drop. Many would be paying tax based on their normal earnings, and planning to claim a refund in future, but that would have a cashflow impact in the interim.

For individuals, it could be the removal of a wait period for benefits.

He said New Zealand's growth rate was already in decline before the disruption hit.

DAVID WHITE/STUFF The Government needs to focus on what it can do to help get people through to the other side of the coronavirus disruption, BNZ says.

By the September quarter of 2019, annual GDP growth had fallen to 2.3 per cent from 3 per cent a year earlier.

Updated wholesale trade data released on Monday was worse than expected, Toplis said.

He put the chance of the official cash rate not being cut at the March meeting at just 5 per cent. There was a 60 per cent chance it would be cut by 25 basis points, and 35 per cent chance it would be cut by 50, he said.

"Nonetheless, there's a lot of water to go under the bridge between now and then."

The Reserve Bank is due to make an announcement on "unconventional" monetary tools on Tuesday.

Unconventional tools used by the bank include things such as loan-to-value restrictions.

ASB is expecting an official cash rate reduction of 25 points in March and May.

It said it would not take much to push the economy into a technical recession.

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