New Zealand, like many other nations, is hurtling towards economic depression faster than Covid-19 spreads.
“We are going to have a depression,” said Bernard Hickey, one of the country’s leading economic commentators.
“This is like an asteroid hit the global economy.”
“When you have gross domestic product drop 30 percent fall in a quarter, you will have GDP fall 17 percent in the year, which is more than we had in five years of depression.”
The OCED forecasts Aotearoa’s hardball stance of total lockdown to fight the virus will smash the economy down 30 percent this quarter compared with around 15 percent in Ireland, 22 percent in Australia and 25 percent in the US.
The government has already poured multiple billions of dollars to prop the economy – equivalent to 6 percent of GDP. Treasury has acknowledged unemployment will likely jump from 4 percent to at least double digits, with some economists forecasting a staggering 30 percent rate – far worse than in 1930s.
An Auckland Chambers of Commerce survey out on Sunday reported nearly one third of 1000 businesses surveyed stating they will never reopen.
Infometrics economist Brad Olsen says people are dreaming if they think the economy will bounce back to normal.
“I think that’s what a lot of people are still holding on to or thinking about. There is no normal return that we go into post lockdown.
At the urging of government contracted epidemiologists, Jacinda Ardern’s government has taken what many accept as swift, bold emergency action.
But not everyone agrees the action is right. Some argue the cure is worse than the cold.
“We are using a sledgehammer to squash a flea and in doing so are bringing the house down,” says leading academic epidemiologist Simon Thornley of Auckland University.
He says most modelling of projected deaths from Covid is hyperbolic, just as previous ones for swine and bird flu were. Public health risk is serious, and he believes a more moderate lockdown as practiced in Australia, Sweden, Japan and Korea could be equally effective and far less costly.
Sweden’s government epidemiologists have controversially argued for “a slow spread of infection and that the health services are not overwhelmed”, but its government has coped criticism, with 401 deaths (at April 5), or 37 per million compared with 28 in Denmark, 12 in Norway and 4.5 in Finland.
The Netherlands has more radically supported the herd immunity approach. It calls its response “intelligent lockdown”. Prime Minister Mark Rutte says he wants to treat people as adults. Restaurants , bars and the famous cannabis coffees shops are shut but most other businesses remain open. The death toll in Holland however, far exceeds Aotearoa’s ratio at 1766 out of 18 million people.
The six epidemiology models our government here is relying on had projected a death toll, assuming no concerted response, at around 23,000, with one suggesting 80,000 casualties.
Ardern said on Monday that historic data from the Sars virus said that failure to have a comprehensive lockdown would have resulted in 4000 cases against the current tally of 1106 (as of Monday).
To date only one of the 1106 cases has died and she suffered chronic pulmonary smoking –related disease, so like the vast majority of the world’s death toll had co-morbidity. Actual cases in Aotearoa are likely to be far above 1100 due to acknowledged testing inadequacies. So the actual fatality rate here has is in reality well below 0.1 percent of the actual population.
Thornley, taking his lead from John Ionnidis of Stanford University, one of the world’s leading sceptical epidemiologists, says there are multiple variables and unknowns in all models and estimates of death rates in previous pandemics, such as Ebola, bird flu in 2006 and swine flu in 2009 were astray by factors of up to ten.
Early estimates put the mortality rate of swine flu as high as 10 percent, but it panned out “much, much, much, much lower” – at a similar rate to seasonal flu, Thornley said in an interview.
“Alarming numbers like 23,000 deaths or 80,000 draw headlines and attention but the detail is much more subtle.”
He and Ionnidis both cite data from the cruise liner Diamond Princess, because it is one example where an entire population was tested. Adjusted for the high average age of the sample, 10 deaths out of 800 passengers and crew translates to a population death rate of 0.2 percent, or around double the rate of seasonal flu – one in a thousand, he says.
The pivot of the health system to total focus on Covid has had adverse consequences for those with other conditions while expending huge economic resources to fight this one virus will have multiple long-term damaging effects throughout society, Thornley says.
Aotearoa has already witnessed swathes of job-slashing by leading employers such as Air New Zealand, Sky City, Fulton Hogan and Fletcher Building, the country’s largest construction company.
Already fragile industries, such as media and retailing, will largely be wiped from the economic landscape, Hickey says. Some media businesses, such as magazine group Bauer, publisher of iconic titles such as The Listener and NZ Woman’s Weekly, have already gone belly up.
Aotearoa post Covid may be barely recognisable. Most cultural institutions like the Royal NZ Ballet, NZ Symphony Orchestra, professional theatre, galleries sporting and pastime clubs were already precariously placed due to the small population base to support them.
Even in this rugby-mad country, NZ Rugby, along with all other professional sports bodies are dangling just as perilously. Netball franchises have already gone belly up. Like the daily newspaper, many of these entities will disappear.
International Monetary Fund’s top official, Kristalina Georgieva, on Saturday said this economic crisis will be “way worse that the global financial crisis”.
“Never in the history of the IMF have we witnessed the world economy come to a standstill.”
Indications of what is likely to happen here came from 6.6 million jobless claims made in the US this week – with no previous rise remotely close to that.
Migration, that has underpinned Aotearoa’s robust economic growth this century will come to a standstill as will the country’s biggest earner, tourism.
“It is absolutely astonishing how fast and big this,” says Hickey. “There are an awful lot of businesses that are going to go down and there are an awful lot of house prices that are going to go down. Politically it is going to be really, really damaging.”
Friday’s decision by the Reserve Bank to suspend bank dividends indefinitely effectively stymies the mostly Australian bank owners from getting their money out in the foreseeable future, if ever.
Ardern flatly rejects a less rigorous approach, as advocated by Thornley and others. In her daily news conference on Sunday, she said the “go hard, go early” strategy was working and would be less painful economically long-term.
“A strategy that sacrifices people in favour of, supposedly, a better economic outcome is a false dichotomy. It has been shown to produce the worst of both worlds – loss of life and prolonged economic pain.”
Since the Level 4 lockdown began on March 26, new daily cases have mostly numbered between 70 and 90, with most being related to returning travellers and few instances of community transmission. Eradication is this government’s goal.
Ardern said studies of different responses to the 1918 Spanish flu pandemic showed “those countries that worked zealously to stem the spread did better in the economic aftermath.”
Hickey believes Ardern has taken the only politically palatable approach.
“We all have elderly relatives and, if we could shut it out of this country, they could live for quite a bit longer not to mention all those in south and west Auckland and Porirua (near Wellington) who have underlying health issues, who will get wiped out.”
In any case, Aotearoa will have an enforced partial lockdown as the world’s borders are shut.
He says New Zealand has economic resilience in that it is food producer, near self sufficient in energy, and has a relatively small export sector that mostly comprises food the world desires.
He harks back to the breakout from the 1930s depression when the Reserve Bank lent the government money to start a massive house-building programme. The bank last month announced a $NZ30 billion quantitative easing programme and he believes that can, and will be, expanded to begin a massive infrastructure build.
“We can print our way of this.”
(Simon Louisson formerly worked for Reuters, the New Zealand Press Association, and The Wall Street Journal).