This week we have seen the Reserve Bank and the Government scrambling to attach a bungy cord to an economy swaying and teetering on the brink of a severe recession.
It will not prevent economic activity from taking a dive. It is an exercise in damage limitation. But itis reassuring all the same.
And that is important. Reduced to its simplest, for the economy to function normally three things are required: people need to have money to spend; they need to be willing to spend it; and the goods and services they want to spend it on have to be produced.
This week's announcements aim to partially address the first of those conditions, by limiting the hit to households' spending power.
The 75 basis points cut to the official cash rate has been swiftly passed on to floating mortgage rates. Fixed-rate loans have already benefited from a marked decline in longer-term interest rates over the past year.
But for households relying on two incomes to pay the mortgage, or the rent, measures to support employment are more important than interest rates.
So the $5 billion the Government has allocated to wage subsidies for businesses demonstrably hammered by the impact of the coronavirus will help, albeit that it is targeted at small and medium enterprises and at this stage effectively for the June quarter only.
It will not end there. Finance Minister Grant Robertson also said on Tuesday, "We are actively discussing working capital support for small and medium businesses", a cryptic comment which might refer to the possibility of underwriting term lending from the central bank via the trading banks to targeted sectors, in the event of some market failure there.
He added that "tailor-made support for larger and complex businesses" was on the table. Air New Zealand comes to mind.
A couple of the bigger-ticket items in this week's economic package look like things the Government might have had in mind for the May Budget anyway, in that the fiscal cost is calculated over the next four years, as Budget measures tend to be, which boosts the headline number of the package.
One is the permanent $25-a-week increase to the main benefits, on top of the already scheduled increase from April 1 which will be the first to be indexed to wage growth rather than the CPI. The Welfare Expert Advisory Group made a strong case for a lift in benefit levels.
It accounts for $2.4b of the $12.1b cost of this week's package, though that is spread over four years.
Anther $2.1b of the package is also spread over four years, namely the reintroduction of depreciation deductions on commercial and industrial buildings, new and existing, including hotels and motels.
The aim seems to be to keep one important element of business investment going — non-residential construction — and provide some relief to those facing the cost of seismic strengthening work. But it is building owners, rather than their business tenants, who will benefit.
That said, the lion's share of the package is front-loaded and the Government has been at pains to emphasise that more fiscal support is to come. The May Budget will be a "recovery" Budget.
Hopefully that indicates the likelihood of economy-wide measures, as it is hard to think of any sector of the economy which will not be hit by the combination of drought, coronavirus-related impacts on trade and tourism, and the disruption to all sorts of discretionary spending during a period of social distancing and self-isolation, or more draconian measure to curb the spread of the virus.
One such wide-ranging measure which seems to be garnering support is a temporary cut to the GST rate. It is a measure the International Monetary Fund last year suggested New Zealand might consider should the economic cycle turn ugly.
At the time, Robertson gave the suggestion short shrift. He could see no sign of recession ahead and it was not worth spending time on the idea. Well that was then and this is now.
Another broad measure the Budget might usefully include is adjusting income tax thresholds, after 10 years of fiscal drag.
The Government, after all, has a lot more fiscal headroom than its international peers. After years of fiscal discipline by governments of all stripes, net core Crown debt is 19.5 per cent of gross domestic product when the average for advanced economies is 76 per cent. This is, as Robertson said on Tuesday, that rainy day.
The Reserve Bank told us on Monday that having cut the OCR to 0.25 per cent and pledged to keep it there for at least a year, the next arrow out of its policy quiver would be the large-scale purchase of government bonds. So the Treasury has at least one willing buyer for the additional bonds it will have to issue.
What then of the other two pillars of economic normality, sentiment and the supply side?
Consumer confidence took a predictable tumble in the latest Westpac McDermott Miller survey. It was conducted between March 1 and March 10 so it reflects drought and the arrival of the coronavirus in New Zealand, but predated the more stringent border measures and the freefall in equity markets.
The overall index, at 104.2, is below its long-term average of 111, but is still north of the levels seen during the last recession.
It almost certainly has further to fall. How far and for how long will probably depend on whether people think the authorities, and their fellow citizens, are responding responsibly and sensibly both to the public health emergency and to its economic fallout.
Finally, one of the things which makes this new recession an especially wicked problem is that it is a supply as well as a demand shock.
Monetary and fiscal policy can't do anything about disrupted supply chains or the impact on the services sector if large parts of the workforce are off work for one reason or another.
