Editorial: GDP focus masks bigger economic challenges from Covid-19

Editorial

EDITORIAL:

So the numbers are in. The economy is shrinking for the first time in nearly a decade.

But really, the release of first-quarter GDP this week confirmed what we already knew.

The scale of the Covid-19 pandemic, its impact on our borders and global demand for our exports, makes recession inevitable.

The GDP data arrived like the final score in a test between the All Blacks and Namibia.

The result was never in doubt and the numbers were always going to be big.

The interesting bit was the detail and clues it provided for what comes next.

Even that was limited.

The fall of 1.6 per cent was larger than the 1.0 to 1.3 per cent that market economists expected, but smaller than the Reserve Bank's forecast 2.4 per cent.

It was the biggest single-quarter contraction New Zealand has experienced since 1991.

Did the hard lockdown hit the economy quicker than expected?

Did the shadow of drought compound the slowdown through late summer and early autumn?

It was drought, after all, that tipped the country in to recession back in 2008 before the full impact of the global financial crisis hit around the world.

If things did contract more quickly than expected then perhaps - as some of the some of the most current data suggests - we will also bounce out quicker.

The range of forecasts for the March quarter will pale in comparison to the June quarter – the one we're in now.

Economists are picking we'll see a fall in GDP of between 17 and 19 per cent, reflecting the unprecedented period in alert level 4 and time working through levels 2 and 3.

Just to confuse things further, a big rebound is expected in the second half of the year, with smart money on the final, full-year GDP drop of between 4 an 6 per cent.

The Covid-19 recovery needs a Government that provides the fiscal support and clarity of leadership for business to act with confidence. Pictured: Finance Minister Grant Robertson. Photo / Mark Mitchell

At that point the forecasts get so speculative they stop being useful.

This crisis is on such a scale that worrying about technical definitions and the percentage points will soon be meaningless.

It's not the depth and timing of the downturn that will count when this chapter of New Zealand's story is written in history books.

It's the duration of the downturn and strength of the recovery that will count.

The ultimate measure of success wil be how long it takes for economic activity to return to pre-Covid-19 levels.

Are we going to outperform and get back within two years as we did after the GFC?

Or do we face more persistent structural issues this time, making us vulnerable to the kind of long double-dip downturn we had between 1987 and 1992?

The really hard work for many of us just beginning.

Big variables like treatment of the virus and the size of the global downturn are outside our control.

That means we can't rely on a migration, tourism or even a Chinese-led export boom to drive this recovery.

We'll have to make the gains ourselves. We'll need to finally address those productivity issues that have plagued us for a generation.

We'll need business to shift focus and pivot quickly to find and exploit new opportunities.

We'll need a Government that provides the fiscal support and clarity of leadership for business to act with confidence.

There is no easy switch to be flicked on economic recovery.

For most New Zealanders, success won't be measured in GDP points, it will be measured in jobs.

If you still have one, then you're probably doing all right.

If you lost one, it's likely you've seen your world turned upside down.