It's an unusual recession and the GDP numbers will hide the two-speed nature of this downturn. Photo / 123RF
It's an unusual recession and the GDP numbers will hide the two-speed nature of this downturn. Photo / 123RF
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
Whatever the GDP numbers look like (and they are likely to be simultaneously ugly and better than expected) they will hide the two-speed nature of this downturn.
With borders closed, some parts of the economy have been effectively wiped out.
For those dependent on international tourism or education, there is little to be done but hibernate and hope.
Other service sectors like hospitality and entertainment are also being hit very hard.
More people out and about in Auckland City are wearing masks as the region functions under Covid-19 Alert Level 3. Photo / Dean Purcell
But some businesses are doing ok.
Retailers in house- and garden-focused sectors are benefiting as money that might have been spent on travel and entertainment gets redeployed.
The worst impacts of recession are often felt long after the initial slump, when economists have moved on to measuring the recovery.
If I had to pick it I would say that in six months the economy is likely to feel worse than it does now.
Regardless, when the history is written, this week's data will mark the end of New Zealand's second-longest post-war economic boom.
It is surpassed only by the period from 1952-1966.
The arrival of recession will highlight a huge failure of economic policy across the entire political spectrum.
That failure is not the recession itself. That bit was inevitable.
Covid-19 pandemic is a unique and terrible thing. It's a killer and is wreaking havoc with the global economy.
You can argue at the margins about policy choices in the face of the pandemic, but there was no way around this recession.
But we also know that if it wasn't Covid-19 that ruined the economic party it would have been something else.
New Zealanders have at least learned that much.
The inevitability of external economic shocks has driven the thinking of the past several finance ministers, including the incumbent.
They've kept a close eye on debt and should be commended for that.
The Government's strong fiscal position has been a crucial asset in dealing with this pandemic and protecting jobs.
But when it comes to improving the underlying structure of the New Zealand economy, we blew it.
This now-deceased period of economic calm sadly represents a lost opportunity of historic proportions.
Looking back through the Herald archives I found these words I wrote in 2014 - at the time we were being lauded as a rock-star economy:
"Now, while New Zealand's economy is in good shape, is the time to get serious about transforming it.
"It is not enough to simply enjoy the golden weather and survive the storms if we want to grow real wealth across the social spectrum in this country.
"Time and time again we've seen economic progress towards a wealthier, more equitable country cut short by a commodity slump or a global economic crisis."
While I'd like to claim some sort of prophetic genius, these thoughts are hardly unique.
Every economic commentator in the country wrote similar things throughout the past decade.
The sentiment is as old as time ... make hay while the sun shines.
Now we're hearing renewed calls for economic transformation and overhaul of fiscal and monetary policy.
These calls aren't necessarily wrong. They are just ill-timed.
Low interest rates are boosting the share market and holding up house prices.
That does favour those with existing assets - just as it did after the GFC.
But as Reserve Bank Governor Adrian Orr argues, low rates are also keeping inflation low and protecting jobs.
Reserve Bank Governor Adrian Orr. Photo / Mark Mitchell
It's a "lesser of two evils" argument.
History suggests high unemployment and higher inflation take a bigger toll on the poorest in society.
Put simply, it isn't the response to our current economic predicament we should feel angry about.
It is our failure to transform this economy into something more productive and more equitable when the sun was shining on us.
There's not even much point blaming politicians. They simply bent to the will of the people.
It is on us.
We missed our chance to materially change things for the better.
We took the incremental gains to the bank and said "that'll do me".
As Mark Twain facetiously put it: "I'm in favour of progress; it's change I don't like."
Now we must look to get through this crisis as quickly as possible with as little economic damage as possible.
If we can manage that then there will be an opportunity for strong growth out the other side.
Then, if we are serious about social and economic improvement we need to find the courage and political will to make meaningful change.
