Liam Dann: NZ economy will muddle through - but at what cost?

The trees are blossoming in New Zealand but will it be a time of re-growth for our economy? Photo / 123RF

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New Zealand will muddle through this crisis - it's the Kiwi way.

Regardless of who forms the next government, our economy appears to be robust enough to handle what the pandemic is throwing at us.

You can read that as a slightly jaded, optimistic view.

I think the next couple of years are going to be very tough. Economic growth will be very low - we may dip in and out of recession.

But as clocks go forward and days get longer, we can be thankful for our place in the world.

We aren't facing the kind of epic meltdown that seemed likely as the pandemic hit in Autumn.

Back in April I wrote about eight reasons why the country was well placed to cope with the Covid-19 shock.

I think I did that just to convince myself it was all going to be ok.

I recall staring at gold-tinged leaves on a tree outside my home-office window, thinking "where will we be when the blossoms return?"

Seasons turning is about all we have to keep a hold on the passage of time this year.

Winter flew by in a strange dream of post-lockdown euphoria.

Then the nightmarish gloom of the second outbreak slowed time to a crawl.

Now we're stuck in an electoral limbo, waiting for political certainty so we can get on with getting through this.

Whatever the outcome, New Zealand will be ok.

That list of eight reasons is holding up well.

Number one on that list was that we're an island nation.

We have a natural advantage in keeping Covid-19 at bay. Though it hasn't been easy, as ongoing cases show.

But clearly we aren't dealing with the grim death tolls and health chaos that many countries are.

Number two was the fact that we produce and export food. Number three was that we have secure trade links.

Number four was our strong economic relationship with China.

All these things continue to serve us well.

In fact, global export prices have stayed stronger than many expected.

Data out last week showed our merchandise exports in August were up 8.6 per cent on a year ago.

Gold kiwifruit was up 48 per cent, wine was up 18 per cent, and dairy products up 10.2 per cent.

We're seeing a weird rebalancing effect with regards to trade.

In August we had our largest trade surplus since 2014.

The June quarter saw the current account in the biggest surplus since 1971.

Of course that's being driven by a big fall in imports as we spend less and the economy stalls during lockdown.

It's no long-term economic solution. But it isn't a terrible thing to see years of deficits reversed, for a while.

My April list had "an innovative economy" at number five.

Lately I've been concerned that we are not being innovative enough in our economic thinking.

That concern is directed at policy; the macro-economic level.

At a micro-economic level we have seen a great deal of innovation from New Zealand businesses as they adapt to deal with the challenges of the crisis.

But it has been extremely wearying, I suspect.

All those inspiring and innovative pivots that businesses are making come at a cost of long hours and much stress.

I hope we will see some government policy to give business a lift in the next year.

Sixth on my list was strong banks. There is currently no threat to the banking system in this crisis.

That is a big deal, as we learned in the global financial crisis of 2008.

Back in April I was hopeful that central banks could do enough to keep credit flowing.

If anything I underestimated the effectiveness of the monetary policy response.

Rate cuts and QE have worked.

The Reserve Bank has been successful in reducing the cost of borrowing and ensuring it's passed through to retail interest rates.

Low rates: Reserve Bank Governor Adrian Orr has kept interest rates low to support the economy. Photo / Mark Mitchell

Both house prices and the stock market (which translates to the strength of KiwiSaver balances for most Kiwis) are in far better shape than anyone would have dared predict back in April.

When it comes to propping up consumer confidence in this country, it doesn't get much better than rising house prices.

There is no shortage of reasons why this is not a great thing – debt, social inequality, diversion of capital from more productive investment ...

But right here and right now, in a crisis the market strength seems preferable to the opposite.

At number seven on my list was the strong state of Crown finances.

We've had a capacity to borrow what we need to moderate the pain of the immediate crisis.

We look set to keep unemployment in single digits, which would be a remarkable achievement.

And we've done that without pushing debt to levels that would spook global rating agencies and raise our interest-rate costs.

How quickly we need to get debt levels back down has been a major topic for political debate.

And that debate has been lively but entirely reasonable, which highlights the last point on my list.

We have sane political leaders in this country, debating sensible things.

But the big question remains: is that enough?

Are we kicking the big challenges down the road for future generations?

We're blessed with natural advantages and a pragmatic, laidback approach to life.

Perhaps muddling through is the Kiwi way.