Global Economic and Trade Situation for New Zealand Businesses - 9 July 2020

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Global summary

The COVID-19 pandemic remains the primary trade and economic issue affecting New Zealand exporters. There continues to be no formal restrictions on market access for the majority of goods exports and imports as a result of COVID-19, but the global pandemic is placing intense pressure on global supply chains and disrupting trade flows. Some countries have placed export restrictions on medical products and some on staple food products, such as rice and wheat. There has also been an increased trend towards ‘buy local’ campaigns. A report(external link) released by the WTO on 29 June said that G20 economies have adopted 93 trade related measures linked to COVID-19.

The latest data released by the CPB World Trade Monitor on 25 June 2020 shows a historical decline(external link) in the world trade volume in April of 12.1% compared with March. Exports fell back significantly in several regions: -23% for both the Eurozone and the US, -21% for Latin-America, -14% Japan, and -11% for other advanced economies.

The IMF’s updated World Economic Outlook released(external link) on 24 June predicts that the global economy will shrink 4.9% in 2020, a downward revision of 1.9 percentage points from its April forecasts.

Multilateral economic and trade developments

On 30 June Foreign Affairs Minister Winston Peters and Trade and Export Growth Minister David Parker announced that New Zealand’s hosting of APEC in 2021 will go ahead using virtual digital platforms. The Ministers’ Press Release notes that global disruption caused by COVID-19, including resultant border restrictions, was the major factor in the decision. Minister Parker said that APEC has an important role to play as we and the rest of the Asia Pacific region work to respond to the COVID-19 crisis, especially its economic impacts.

The impact of COVID-19 on food security and supply chains, and the role of trade in economic recovery, are being discussed internationally. New Zealand is actively engaged in such discussions and continues to advocate strongly for maintaining trade flows and upholding the rules-based trading system.

At the virtual Ottawa Group on WTO reform meeting on 15 June, 13 trade ministers endorsed a Statement, setting out a new six step plan on COVID-19. The statement(external link) includes actions around greater transparency on COVID-19 trade related measures, and the timely withdrawal of trade-restrictive measures; predictable and open trade in agriculture; advancing negotiations on e-commerce; consideration of steps for a possible new WTO initiative to facilitate trade in medical supplies; and greater engagement with business and other stake-holders. Minister David Parker – alongside other Ottawa Group Ministers – also reaffirmed New Zealand’s commitment to the broader WTO reform agenda, including efforts to conclude negotiations on the issue of fisheries subsidies.

Update on MFAT’s supply chains work

As part of its work to ensure international supply chains function as well as possible through COVID-19, MFAT has been using its network of Posts to monitor how international sea and air ports, and domestic logistics are operating. The latest fortnightly update has been published online. MFAT also remains involved in an interagency group that is looking at longer term air and sea freight issues.

The Ministry of Transport’s International Air Freight Capacity scheme has been established to help maintain New Zealand’s air freight links with global markets. Phase 1 has added 56 weekly flights on Air New Zealand, China Airlines, Emirates, Freightways Express, Qantas and Tasman Cargo. More flights will be added as the scheme expands. The first phase of the scheme ran to the end of June, and has subsequently been extended to the end of August.  Phase two of the scheme is currently being negotiated and will align with current market conditions. In the first instance, exporters should contact their preferred freight forwarder to access the flights. A schedule of the flights is listed here(external link).

Regional Updates

New Zealand and Australia

MPI has released new guidance for New Zealand exporters of frozen fruit and vegetables to China. Further information can be found on the MPI website here(external link) (see: F32/20 China Frozen Fruit and Vegetables).

According to provisional Statistics New Zealand goods trade data, for the fortnight ended 1 July with the equivalent fortnight in 2019, total exports to all countries were down 4.3% from $2.42 billion to $2.32 billion, while total imports from all countries were down 1.9% from $2.51 billion to $2.46 billion.

Data released by Stats NZ(external link) on 29 June shows that Māori authorities exported $741 million worth of commodities in the 2019 year, a record value in the last 10 years. Kaimoana, including fish, crayfish and mussels, was the top export for Māori authorities in 2019 at $365 million, making up almost half the value of their total exports. China remained the top export market in 2019, accounting for $354 million of commodities.

In response to an outbreak of cases of COVID-19, the Victorian State Government made the decision on 30 June to close Melbourne’s airport to commercial passengers until mid-July. During this period, airlines will be able to continue to arrive in Melbourne for freight purposes and to take passengers departing the country. New lockdown restrictions were also announced by the Government on 7 July for metropolitan Melbourne and Mitchell Shire. These areas will return to Stage 3 Stay at Home restrictions from 11.59pm on Wednesday 8 July 2020 until 11.59pm on 19 August.

The Australian Government announced(external link) on 23 June four new initiatives comprising $86 million in targeted grants to support the forestry industry, wine producers and apple growers hit by the bushfires and the effects of COVID-19. This new funding adds to the Government’s commitment of $448.5 million for projects identified by communities as part of their local economic recovery plans.

European Union and United Kingdom

The European Commission released its annual Trade and Investment Barriers Report(external link) on 18 June, which analyses the new barriers faced by EU business in 2019 and those removed. The report found that 43 new barriers had been listed in the EU’s Market Assess Database in 2019, at a total of 438 active trade and investment barriers.

On 30 June the European Council agreed the list of 15 countries – including New Zealand – with whom EU Member States should start lifting travel restrictions from 1 July. The list also includes: Algeria, Australia, Canada, Georgia, Japan, Montenegro, Morocco, Rwanda, Serbia, South Korea, Thailand, Tunisia, Uruguay, and China. (Note – the New Zealand Government continues to provide travel advice to New Zealanders via the SafeTravel website www.safetravel.govt.nz(external link). As at 9 July, the New Zealand Government advises New Zealanders to not travel overseas.)

Americas

As of 1 July, US GDP is forecast to shrink by 5.3% in 2020. A return to growth is projected for 2021 (with average unemployment falling to 8.4%, and GDP increasing by 3.7%) followed by continued growth into 2022 (2.6%).

The US Department of Commerce’s International Trade Administration and US & Foreign Commercial Service are temporarily eliminating or reducing fees for several of its export services until 30 September, to provide relief for US businesses impacted by COVID-19. SMEs will receive services for free, while large US companies will have fees reduced by up to half.

On 22 June, President Trump signed a new immigration executive order(external link) which suspends applications for four major work visas for the rest of 2020. The categories covered are high-skilled workers (H-1B visa); non-agricultural temporary workers (H-2B); intra-company transferees (L); and education or cultural exchange visitors (J). This order does not apply to anyone already in the US or who already holds a valid visa; agricultural seasonal workers; and E-1 and E-2 visas that were provided to New Zealand under the KIWI Act. Exemptions will be provided to workers deemed critical to the US food supply chain and anyone whose entry is “in the national interest”.

The US has proposed a further US$3.1 billion of tariffs on Europe on a range of goods in connection with last year’s WTO Airbus decision. The proposal will be under public consultation for a month, following the WTO ruling last year that the US can impose up to 100% tariffs on US$7.5 billion of European goods. A WTO decision on the case against the US for subsidies for Boeing is not expected until September.

On 4 July, President Trump signed a bill to extend the small business Paycheck Protection Program until 8 August. Some New Zealand companies with US subsidiaries, supported in part by NZTE, have applied and successfully secured PPP funding to temporarily cover the salaries of US-based staff.

Hawaii Airlines announced it will resume most of its US mainland routes from 1 August.

Brazil’s Central Bank is now projecting a 6.4% decline in GDP for 2020, worse than an earlier forecasted 4.7% drop, but better than the World Bank and IMF’s most recent estimates (8% and 9.1% declines respectively). Brazil also posted one of its biggest trade surpluses on record in June, with the Economy Ministry raising its 2020 trade surplus forecast by almost 20% from $46.6 billion to $55.4 billion. Exports in June totalled $17.9 billion and imports were $10.4 billion. 

Brazil’s soy, sugar, beef, and pork exports are all up strongly (some by over 80%), largely as a result of increased demand from China. However, recent decisions by China to suspend beef and pork imports from six Brazilian processing plants may affect future demand.

The Chilean dairy sector has seen positive results in the January-April period as production increased 4.6% (compared to January-April 2019 data), largely driven by increased sales of milk for home consumption countering much lower demand from the hospitality and tourism sectors. Reduced demand is expected in the short-to-medium term, which may see production levels fall.

Asia and Middle East

While the Beijing cluster outbreak in June has had some impact on the business environment in Beijing, the bigger impact from a New Zealand perspective has been a drop in consumer confidence in imported food, especially seafood.  This led to a temporary halt on sales of salmon products and a decline in Chinese imports of seafood overall. A report on China’s economic situation and market status (including key export sectors) is available on MFAT’s website here.

China has banned meat imports from various processing plants that have experienced COVID-19 outbreaks in several countries in the past month including Brazil, Argentina, Germany, Canada and the Netherlands.

The US Department of Agriculture and the Food and Drug Administration issued a joint statement(external link) regarding food export restrictions pertaining to COVID-19 and import requirements for those products in China, saying that there is “no evidence that people can contract COVID-19 from food or from food packaging.” In lieu of the requested official declarations by China’s customs authority, US food and feed exporters are instead shipping their goods to China with “commitment statements”, with no reported shipping issues to date (though Chinese authorities are yet to confirm they will accept these US producer guarantees).

The US government is suspending preferential high tech export treatment for Hong Kong, including the availability of export license exceptions for US technology and ending the export of defence equipment to Hong Kong. Similarly, Canada will no longer permit the export of sensitive military items and will be treating exports of sensitive goods to Hong Kong and China the same way. This follows China’s decision to implement the Hong Kong national security law on 30 June.

Taiwan has eased quarantine requirements for business travellers from countries considered to have managed their COVID-19 response well, effective from 22 June and subject to conditions(external link) being met. Only five days quarantine will be required from travellers from New Zealand. Taiwan’s Central Epidemic Command Center announced(external link) further easing of border controls, which from 29 June, enables foreigners (except for Mainland Chinese) to apply to enter for all purposes, except tourism. Travellers can also transit Taiwan from 25 June with restrictions(external link).

New Zealand’s goods exports to Singapore were up by 20% for the first five months of 2020, compared to the same period in 2019, while food exports to Singapore have held up in 2020, with dairy and fruit exports increasing by 22% and 52%, respectively, and meat exports holding steady. Singapore’s digitalisation agenda provides opportunities for New Zealand’s fast-growing tech sector to expand its presence in-market.

Singapore Airlines (including Silk Air and Scoot) now allows transit from select cities(external link) in Mainland China, Japan, Hong Kong and South Korea to any destination in the SIA Group. Transfers are only allowed between SIA Group flights and only from flights originating in one of the approved cities. This is in addition to the earlier announced cities in Australia and New Zealand.

South Korean exports fell 7.5% compared to the same period last year in the first 20 days of June. While exports to China have risen by 14.5%, exports to other countries have declined sharply, with exports to the US falling 10%. There has been a 10.9% decline in exports across 2020.

The outlook in South Korea for New Zealand exporters remains varied, but the New Zealand brand continues to benefit from Korean stakeholders’ positive evaluation of New Zealand’s COVID-19 response. Air New Zealand has started to operate regular cargo flights from Auckland to Incheon Airport once a week. A report on South Korea’s economic situation and market developments is available on the MFAT website here.

The COVID-19 pandemic has impacted the Japanese agriculture and fisheries sector, through a reduction in numbers of migrant workers; a fall in profits related to restaurant closures and cancelation of large events; a reduction in food imports; and a reduction in agricultural exports from Japan. In response the Japanese government has introduced NZ$9 billion in subsidies to the agriculture, forestry and fisheries sectors.

Emirates has recommenced flights to over 50 cities(external link) in July, including flights connecting Dubai and New Zealand that started on 1 July. Transit is also available in Dubai. There are booking limitations on these flights to reflect capacity restraints at the New Zealand border.

External links

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Disclaimer

This information released in this report aligns with the provisions of the Official Information Act 1982. The opinions and analysis expressed in this report are the author’s own and do not necessarily reflect the views or official policy position of the New Zealand Government. The Ministry of Foreign Affairs and Trade and the New Zealand Government take no responsibility for the accuracy of this report. 

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