Five reasons to feel positive, even facing into a recession

Monday, 8 June 2020

Prime Minister Jacinda Ardern sets out the golden rules for when the country moves to Covid-19 Alert Level 1.

New Zealand is facing rising unemployment, a deep recession and plummeting investor and consumer confidence. But it’s not all bad news – New Zealand now has zero active cases of Covid-19, we're set for level 1, and even economists say there are some bright spots to focus on.

Here are five things to keep in mind when everything seems a bit grim.

The health response has been effective

In a little over three months, New Zealand has progressed from having its first Covid-19 case to having every case recovered. Gareth Kiernan, chief forecaster at Infometrics, said the effectiveness of the health response had been better than anyone could have hoped.

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“As a result, we have glimmers of light for areas of activity that didn’t look possible two months ago: a Trans-Tasman bubble possibly in the next couple of months, rather than at the end of the year, the ability to have mass gatherings and the positive implications that has for events, hospitality.”

Things could have been much worse – a longer lockdown, or a return to level 4 would have had a much more significant impact on the economy and made it much harder to recover.

'Our economic outlook for second half of the year is likely to be less volatile and more certain because we have eliminated the virus. Life is more or less back to normal for most New Zealanders, which is incredibly lucky given there is a pandemic raging everywhere else in the world,' said ASB economist Jane Turner.

'It is unlikely New Zealand will need to re-enter lockdown over the coming year due to a second wave of infections, whereas I believe this is likely for other major economies at some point this year. New Zealand can offer businesses increased certainty about trading conditions for the next year, and this will boost investment and employment compared to what would otherwise be the case.'

The lockdown was good for the environment

Tourism is grounded for now, but it may bounce back stronger, one economist says.

The level 4 lockdown gave many of us a crash course in how much we could restrict our movements, if we had to.

Kiernan said the lockdown had changed New Zealand mindsets, which could have positive side-effects for things such as the environment in the future, 'if even a proportion of the working from home and reduced business travel persist'.

Previously, there had been a lot of talk about the need to change behaviour, but no action, he said.

Economist Tony Alexander said the stimulus and recovery package from the Government could address issues of social equity now that would otherwise have taken years to address.

Tourism may go through a helpful reset

Covid-19 has been a big blow to the tourism sector. But it may come out of it in a better and more sustainable position.

“We have a chance to recalibrate our tourism settings, moving away from the focus on increasing numbers during the last two or three decades, which is at odds with what makes NZ such a great place to visit in the first place. We’ve now got a chance to focus on the quality of the visitor experience, and adding more value, rather than continuing down the over-tourism route,” Kiernan said.

Share markets have recovered

After a precipitous drop, share markets have almost returned to their early-March highs. While there are concerns that the exuberance may be overblown and some of those values are now stretched, it’s good news (at least for now) for those who’d been worried about their KiwiSaver accounts.

And it gives them another chance to recalibrate their settings, in a more comfortable environment in which to stop and think.

Turner said New Zealand, as a net food exporter, was in a good position. 'New Zealand’s food exports will remain in comparatively high demand over the coming year. Kiwifruit is an excellent example. But also we expect demand and prices for meat to improve, as slaughter activity has been disrupted in the US.'

New, more productive future?

Kiernan said the downturn could be an opportunity to 'clear out dead wood'.

'This paradoxically gives me greater hope for New Zealand’s medium-term growth prospects, as labour and capital resources will be redeployed and put to better use than they were prior to the recession.

'That process will take time but it’s an important part of a healthy and well-functioning economy. This could be the catalyst for an improvement in New Zealand’s productivity performance,” Kiernan said.

Alexander said young people would be able to move with the requirements of the new environment and thrive again

“The young generation is being hit hard by the recession, as tends to happen in downturns and especially this one which is concentrated in the tourism, hospitality, and retail sectors.

'But they are more adaptable than any previous generation, having known nothing other when they have been growing up than new technologies and ways of doing things appearing all the time. They are educated to expect change and to work differently, less rigidly than previous generations. So they are highly likely to accept new employment outside their traditional fields to a greater degree than we have ever seen before, whilst also in many cases choosing to boost their education and training levels.”