We keep talking about it. COVID is going to create the worst recession in 160 years. Worse than the Great Depression of 1929. Worse than the downturn of the early 1990s. Definitely worse than the 2008 GFC. We are waiting for this economic tsunami to hit us, driving us all into poverty and despair. It will hit us all soon. It is bound to.
How can it not? Our biggest export earner, tourism, is effectively on its knees. Hotels are operating at low capacity, if they are operating at all. Cafes and restaurants, especially in Auckland, are struggling because of COVID restrictions. Shops are empty, with many closing down. Surely it is only a matter of time before reality hits us with full force.
Yet the construction sector is going at full capacity. Small housing developments, of maybe 15 or so houses, are selling out within hours of them being made available to the public, in most cases being sold off plans. People with money in the bank still cannot find a house to buy that is suitable. Share prices, while not hitting the highs of pre-COVID days, have recovered most of the losses incurred in the early days of the pandemic. Government borrowing costs reached negative territory last week, for the first time ever. For a student of Keynesian economics, as I was, this is a very strange time to be alive, but here we are.
So, what is going on really?
IRD weekly payroll filings for 2 August show that, at that time, 2,206,000 people were employed. That’s roughly the same number as before the first lockdown in March. Yes, that is correct. Furthermore, recent 6 and 13 day figures up to 23 August, which includes part of the second lockdown, show employment numbers are actually increasing. I think the real point here is that, while there have been job losses in some areas, particularly in tourism, clearly a similar number of new jobs have been created.
Huh?
NZ Statistics reports net migration to New Zealand for the year to 30 June 2020 was 79,400. This is the highest annual total on record. Yes, you read that right, although bear in mind that only 4 months of that period were affected by COVID restrictions. The majority (approximately 45,500) are returning Kiwis. Since 30 June, we know that several thousand returnees have been arriving every 14 day quarantine period. This could mean another 18,000 to 20,000 will have returned here by the end of September. Even without that, including natural incremental growth, our total population increased by 105,500 over the year to June 2020. Remember, at the moment, no one is leaving. At over 2% population growth this is huge, and over time will have an effect on driving GDP growth.
Also, we may think that all our international tourists have disappeared because of COVID, but that is not the case. Stats NZ reported 100,000 tourists were still here in August, compared with 250,000 last March.
MSD reports that, for the week ending 28 August, 222,000 people were on Jobseeker or COVID-19 income support, an increase of 77,000 on the March 2020 figures, which equates to 6.6% of the working population. How can that be right if there has been no significant fall in the number of people unemployed? The answer is the increased numbers of people now living here. That can also explain the fact that there is no let-up in the demand for housing and, if anything, the demand is greater than ever. Some returnees will have found jobs and some people will have lost their jobs, but in total the numbers employed are about the same. So it is fair to say that the economy has done well mainly because of the wage subsidy to maintain the levels of employment, but has not yet been able to fully embrace the increased workforce. But once it does, there is enormous potential for economic growth in the future.
We have speculated that there will be a crash in jobs once the wage subsidies come off, but these are almost all finished now. Those who applied for the second tranche as soon as it was available saw it run out around the middle of August. By now, very few people are still receiving the subsidy, but not everyone who applied for the first round has taken subsequent subsidies. In other words, the end of the subsidies is not likely to affect the job market as much as has been feared.
Our terms of trade and export prices are doing exceptionally well, with export prices at an all time high and import prices mostly flat. This is because of what we export; mostly agriculture, horticulture and viticulture products, along with logs and other essential commodities. Where we do have a potential problem is in finding people to harvest the fruit crops coming up, starting in November. Normally we rely on overseas backpackers and schemes to bring in workers from the Pacific Islands, but obviously, neither is going to happen this year. In other words, if you are an unemployed chambermaid or barista, there is work out there, if you are prepared to travel for it.
Many countries may be under lockdown, but everyone still needs to eat. Cumulative merchandise exports since February are ahead of the equivalent period last year in spite of the COVID crisis.
Having mentioned the demand for housing, it is interesting to note how much of an indicator this is. People cannot buy houses if they have no money, and they can’t apply for a mortgage if they have no jobs. Demand for housing is higher than ever, but interestingly, it is mostly first time buyers that are in the market. This points to those returning Kiwis again, who have skills, jobs and are back home for the long haul.
What about business failures? There are about 550,000 businesses in New Zealand and on average approximately 10% cease trading each year. As you read reports about business failures, it is worth remembering that about 4,500 businesses cease trading every month in normal times. The number of company insolvencies in the June 2020 quarter is actually about 20% down on the same period last year, and the June quarter covered a large part of lockdown.
I think a number of things are going on here. New Zealand has one of the most mobile workforces in the world and when COVID hit, many Kiwis overseas decided to return home to safety. Some are still planning to do the same thing. The number of Kiwis leaving to live overseas has reduced dramatically for many reasons, but the overall effect is the same. We have more people living here now than a year ago – approximately 105,000 more. Coupled with the fact that many businesses will have taken the opportunity provided by COVID to restructure or become more efficient so that they can weather the storm of uncertainty. I am not sure what the short term future holds, but it seems possible that the downturn is not going to be as bad as we thought. And this is thanks to the fact that, when disaster strikes, for Kiwis anyway, there is absolutely no place like home.
If you enjoyed this BFD article please consider sharing it with your friends.
