Coronavirus: Grant Robertson 'won't accept 690,000 unemployed'

Tuesday, 14 April 2020

The Government won't accept hundreds of thousands of additional people unemployed, as suggested by gloomy scenarios released by Treasury this morning.

Finance Minister Grant Robertson said unemployment at such unprecedented levels 'was not a scenario that I foresee at all and certainly that level of unemployment would not be acceptable to me as Minister of Finance'.

However he warned that the scenarios showed the need to stick to lockdown rules so that the country could emerge from the economically punishing level 4 quickly.

Treasury, the Government's economic think tank, this morning released economic scenarios that showed unemployment could peak at 17.5 - 26 per cent without Government intervention.

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This would follow a deep recession.

An unemployment rate of 26 per cent would mean roughly 690,000 people out of work.

The number is a scenario and not a forecast. Government intervention in the economy means that Treasury expects unemployment to be significantly lower, potentially below 10 per cent.

It also expects the figure can be reduced to below 5 per cent by 2021, with further intervention.

Robertson has said he will intervene to keep unemployment low, saying it's one of his reasons for being in politics.

The scenarios measure the costs of lockdown on the economy.

'One of my main reasons for being in politics is keeping people in work and jobs, so I'll make sure whatever we do is focused on that,' Robertson said.

But billions of dollars will be wiped off the New Zealand economy, which last year crossed a historic milestone when Gross Domestic Product (GDP), a measure of the economy, reached $300 billion.

The worst economic scenario sees GDP hit so hard that the economy shrinks to just over two thirds of its current size, crashing to just $219b in 2021.

Government intervention improves the picture however. With Government help, the economy could get back to growth and be worth $370b by 2024.

This worst case scenario is based on spending six months at level 4 and another six at level 3.

The scenarios are not an indication of how long the Government thinks it will spend at each alert level, rather they're a picture of what the economy could look like depending on how long the lockdowns last.

The most optimistic scenario is for one month spent at level 4, another month spent at level 3, and a further 6 months spend between levels 1 and 2.

The economy would shrink by 4.5 per cent this year, and 2.5 per cent next year - still a severe recession, but short of the calamitous consequences of the worst case scenario.

Even in the best case scenario, unemployment would skyrocket to 13.5 per cent this year, higher than at any point in decades and worse than the aftermath 1987 crash.

It will fall to 8.5 per cent next year, which is still high - roughly the equivalent of the unemployment rate during the global financial crisis.

Robertson said the darkest scenario was 'a good indication of why it is so important that we stick to the rules and we emerge from level 4 as soon as we possibly can.

Prime Minister Jacinda Ardern said that the scenarios showed the merits of going hard and early as part of the Government's strategy.

'The whole point of the strategy of going hard and going early is that we do not have prolonged periods, as the Treasury has run scenarios on, of prolonged lockdown,' Ardern said.

Robertson said that work was already 'advanced' on the measures Treasury thinks would help to keep the unemployment rate in line with the more optimistic scenarios.

'This global pandemic is dramatically affecting countries and their economies around the world. We are seeing dire forecasts for global growth and unemployment levels rising rapidly in many countries.

'As an open export-led economy, New Zealand will feel these global effects for some time to come,' Robertson said.

The Government will announce further support for businesses this week and more support in the Budget next month.

'The Budget is also another important part of the response, and it will include significant support to respond to and recover from Covid-19. As is usual with the Budget, there may well be pre-announcements, especially where they relate to urgent Covid-19 response activities,' Robertson said.

Treasury has also looked at the effects additional Government intervention would have on these forecasts.

One of the scenarios shows unemployment hit 5.5 per cent next year, hovering around that level before dropping to 5 per cent in 2023.

Under this scenario, the only time unemployment breaches 200,000 people would be the current quarter, where the unemployment rate would rise to 8.5 per cent, equating to 224,000 people.

But this scenario requires a lot of extra Government spending - $20 billion more than the Government has already announced.

The forecasts are mainly based on how much time the Government spends at different levels of lockdown. The less time spent at level 4, the most restrictive level, the better it is for the economy.

Treasury also cautions that the situation is evolving so quickly, that the data are likely to change.

National's finance spokesman Paul Goldsmith described the scenarios as 'terrifying'.

'Treasury's terrifying scenarios underscore the importance of getting out of lockdown as soon as we safely can.

'The government's task this week is to clarify what we can do from next week to reduce the damage.

'We cannot be bold and fast going into lockdown and ultra-cautious coming out of lockdown,' Goldsmith said.

Unemployment has already started to bite. Air New Zealand is making redundancies amongst its cabin crew and pilots, and NZME, owner of the New Zealand Herald and Newstalk ZB announced on Tuesday it is cutting 200 positions, roughly 15 per cent of its staff.

The numbers are scenarios, rather than forecasts. This means they're not a picture of what the Government thinks will happen as much as they are a picture of what it thinks could happen, if certain conditions are met.

Unemployment was down near record lows.

The last data from before the crisis showed 111,000 people unemployed.

Treasury's last set of pre-crisis forecasts saw the economy growing by 2.2 per cent in 2020, and 2.8 per cent in 2021.