So after all that effort on the part of the ‘Team of 5 Million’, we now have 3 new COVID-19 cases, with two of the cases having done a road trip from Auckland to Wellington, hugged people, attended a funeral and God knows what else. That has already resulted in the closing of a gym in Auckland, and with 320 people classed as having been in ‘close contact’ with the infectious women, we wait with bated breath to see if we end up with another cluster.
But as this debacle has dominated the headlines for the past 24 hours, there is something else that needs to be noted. GDP for the first quarter of 2020 is down by 1.6%.
And before you say – well, what do you expect in the middle of a pandemic – remember that the lockdown didn’t start until the last week of March.
In other words, the pandemic hadn’t really got going during the period when the GDP drop was recorded.
Just think about that for a minute, because it is important. The wage subsidy didn’t start until the end of March. The 4 tier system was introduced on March 21st, and we went into Level 4 on 26 March, with a hiatus of 2 days to allow holidaymakers to get home. Total lockdown applied from March 29.
March 29 was 2 days before the end of the first quarter.
The media are claiming that this drop in GDP is the result of COVID-19, but this cannot be correct. Until March 16th, although we were hearing about events in China and Italy, here in New Zealand, it was business as usual, although people were screaming for Jacinda to close the borders. Then she finally caved to pressure to take some action, and she announced the closure of the borders, and then quickly went from that to Level 4 lockdown.
Yes, the tourism industry was showing signs of being affected in this period, as the fallout from the virus was taking hold in Wuhan, but those travellers who had trips booked mostly still came here. Apart from that, few industries were significantly affected until Level 4.
I apologise if you think I am labouring the point, but it is easy for a very lazy media to not look behind the numbers and see what is really going on. They just blame COVID. This has very little to do with COVID.
What it means is that the economy was already contracting before the pandemic hit. Even if there had been no virus, the economy would still have been going into recession by the end of March. That was heralded prior to the onset of COVID-19; now it is a certainty.
But what does this mean now?
The current quarter is going to be a disaster. Yes, the wage subsidy has helped to keep some businesses afloat, but that is unlikely to make a difference to GDP. Governments propping up businesses creates a false sense of security. Things can often seem to be not quite so bad when the government is paying the wages. But that cannot last, and it won’t. The truth will start to become obvious very soon. We are now in a downward spiral, and two consecutive quarters in deficit means that we are officially in recession.
Even though it is not the end of June yet (and therefore the end of the next quarter), I think it is safe to say that the current quarter is going to show another drop in GDP – probably a significant one. I can’t see how it could possibly be less than the March quarter, seeing that the country was in either total or partial lockdown for the majority of the last three months.
So let us be conservative and say the GDP fall for this quarter will be 2%. First of all, that puts us officially into recession. Secondly, it means that our contraction could be in the region of 3.5% for the year overall.
It probably won’t be that bad. Trouble is, I can’t see the September quarter being crash hot either.
Then there is the other problem. The current government has very few competent ministers. Our prime minister does not even know what GDP is. And so long as she doesn’t know what it is, she can continue to smile, or frown when people make mistakes, but otherwise, she can ignore it. That is our government for you.
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