With a mandatory four-week shutdown about to come into force to prevent the spread Covid-19, New Zealand’s economy faces one of the most uncertain periods in its history. We ask two leading economists to help us find meaning in the madness.
There may come a time in the next few days or weeks when you are struck by a feeling of powerlessness. On Wednesday at midnight, New Zealand will be put into a mandatory four-week shutdown to prevent the uninhibited spread of the Covid-19 virus. For many of us – as the ideas and routines on which we’ve built our lives are upended – it will feel like control has moved beyond our grasp.
The Spinoff reached out to two of New Zealand’s leading economists to help us explain what was happening. Just what impact would this unprecedented lock down have on our economy exactly, and how long would it last?
Both of them, Sense Partners economist Shamubeel Eaqub and Kiwibank chief economist Jarrod Kerr, were brutally honest. They said they didn’t know. No one did. We were in uncharted territory, dark waters, and the destination was impossible to foresee.
What they did know was that the shutdown, as painful as it might be, was essential to protect New Zealand’s economy – and its people – from devastation.
“Lets think about it this way,” said Eaqub, “if we don’t do anything and there is a pandemic that sweeps through the country, the economic cost and the cost of human lives would be extraordinary. At the top end, the loss of human life would be worth about half our economy. That’s our worst-case scenario.
“Hopefully the outcome we get is a period that’s fairly short, where we freeze the economy and nothing happens. But then we have protected as many businesses and jobs as possible and we come out of that with a recovery that is sustainable and at a better level.”
Jarrod Kerr had a similar view. While he couldn’t predict how long economic recovery would take, he said it would extend far beyond the four-week shutdown period.
“I think the threat of the virus will be lingering for much longer than four weeks, so we think of this in terms of months rather than weeks. The important point here is, how do we hold things together over that period?
Kiwibank chief economist Jarrod Kerr
Preventing the worst case scenario
With so much uncertainly and so many variables unknown, there’s some comfort in the fact that both economists have confidence that the government is doing everything in its power to cushion the fall, and prevent the worse-case economic scenario from unfolding.
Earlier this week, the Reserve Bank announced it would purchase $30bn worth of government bonds over the next year, a monetary policy tool known as a Large Scale Asset Purchase programme.
According to Kerr, the purchase is an “absolutely massive” move and testimony to the government’s incredibly powerful balance sheet.
To the layperson, the purchase can be difficult to understand. Kerr explains it like this: The Reserve Bank (our central bank) has the ability to create money, which it sends to the New Zealand treasury in exchange for government bonds. The exchange essentially pumps billions of dollars of money into the New Zealand economy, which banks can use to extend financing and credit to businesses, preventing their collapse and job losses.
“It has injected liquidity into the bond market which didn’t exist last week and it’s smashed interest rates across the curve. So it was a very bold statement that did its job. Now it also sends a strong signal to the government: if you want to increase debt by $10bn, $20bn, $30bn, your central bank’s sitting there ready,” Kerr said.
In a world governed by either fear or confidence, such a move gives the government and the economy room to breath and borrow, instilling faith in the fluidity of credit.
A question of confidence
After the Reserve Bank made the announcement on Monday morning, the government followed with an arsenal of additional financial measures to bolster that confidence and ensure that people and businesses know that they’ll be looked after.
Finance minister Grant Robertson announced that the Covid-19 wage subsidy scheme would be expanded to include basically all employers and workers and that the $150,000 cap any one employer could receive had been removed. The estimated cost of the scheme rose from $5.1 billion to $9.3 billion.
“This means that at least some level of income is guaranteed to every business and every job over the course of the shutdown,” said Eaqub. “And that’s really important because we’re all living through a great deal of anxiety right now. This creates that safety net so that while we’re hunkered down at home…we’re not worried about whether or not we will lose everything we have.”
“Will it mean that there will be no job losses or no business failures? Of course not, there will be. We’re looking at the biggest economic shock since the great depression. But we’re doing everything in our power to protect the most important thing which is people.”
Economist Shamubeel Eaqub
Potential bailout
This morning, the New Zealand Herald reported that the government was moving to reinforce that confidence even further, with Grant Robertson agreeing in principle to a “business finance guarantee” with New Zealand’s major lenders.
“The scheme would leverage the Crown’s balance sheet, to enable the banks to extend lending to firms which wouldn’t otherwise be viable,” Robertson said.
While further details and the size of the measures have not yet been announced, the Herald reported that it will most likely be an extraordinary taxpayer-funded bailout, resembling to an extent that which was applied by the US government during the GFC.
“Whereas in the Global Financial Crisis there were bailouts for major banks and financial institutions, this is potentially a bailout for just about any business,” the report said.
According to Eaqub, while these moves won’t guarantee complete economic protection, they are designed to shelter the most fragile and exposed industries and businesses from the worst of the fallout.
Growth from the shutdown
While some businesses will be crippled beyond recovery over the next weeks, Eaqub said that operations providing essential goods and services like utilities, supermarkets and logistics are poised to do well throughout the shutdown.
He said the growth of these businesses, along with a potential reduction in social inequality could be some of the benefits that New Zealand could see come from this upheaval. However, once the economy moved into recovery, the changes would need to be managed carefully to prevent a few taking advantage of the situation.
“When we had the great depression or the big recessions of the past, by and large inequality tended to reduce. We haven’t seen that with the last few recessions where inequality tended to stay high and the rich got richer despite the downturns.”
While moves to profit off the situation won’t be seen for months, there will be some who are going to be well placed to take advantage of the change, by essentially picking up distressed assets for very little money. Eaqub said this needed to be regulated.
“As the recovery begins, that’s when the vultures and the bottom feeders will be everywhere.”
Parallels with other historical economic crises have been a constant feature of this saga. While exact comparisons are impossible to make, the expert consensus is that the impact of Covid-19 will exceed that seen in the aftermath of the global financial crisis.
New Zealand’s position
While neither Eaqub nor Jarrod Kerr could say whether New Zealand was better placed than other countries to get through the hard times ahead, they both believed that our geographical isolation and our domestic food production would help us weather the storm.
“The fact that we produce our own food, the fact that we can pretty much survive just off our own resources is a big thing in this sort of event. We export food. I think we’re relatively better off just on that alone,” said Kerr.
While our reliance on trade and export would certainly have an impact on our daily lives, Eaqub said New Zealanders should have confidence in the robust institutions that made our economy resilient.
“We’ve got the fundamentals of the economy that work really well. We’ve got strong institutions, and we’ve got trust in each and our institutions and government.”
“We might differ in terms of our ideological views but at its core there is this very strong trust which is very important for how an economy functions, and there I think New Zealand stands apart from most of the countries around the world.”
Keep going!
Julian Dennison in the celeb PSA (image: screengrab)
Julian Dennison in the celeb PSA (image: screengrab)
For all The Spinoff’s latest coverage of Covid-19 see here. Read Siouxsie Wiles’s work here. An explainer on self-isolation is here, on social distancing here. For updated official government advice, see here.
The Spinoff’s coverage of the Covid-19 outbreak is funded by The Spinoff Members. To support this work, join The Spinoff Members here.
8.15pm: Third Auckland high school to close; DOC shuts campsites and huts; KiwiRail suspends tourist trains
A student at Auckland’s Glendowie College has contracted coronavirus and the school will be closed for 72 hours, reports the Herald. It’s the third Auckland school closure announced today, after Mt Roskill Grammar and Marist School in Mt Albert closed due to close connections to someone with the virus.
Parents of students at the school were sent an email informing them of the confirmed case and closure, and the student and their family are now in isolation. Close contacts are being traced.
Meanwhile, the Department of Conservation has announced its campsites and huts will be closed from tomorrow. In a media release, DOC director-general Lou Sanson said all hut and campsite bookings would be cancelled from tomorrow, including Great Walks bookings for the rest of the season, and visitor centres would be closed. “Rangers will be visiting tracks and facilities, alerting people about these changes and checking people are complying,” said the release.
KiwiRail has suspended its three tourist trains, the TranzAlpine, Northern Explorer and Coastal Pacific, to comply with government guidelines to limit all non-essential travel.
7.40pm: Celeb Covid-19 PSA appears
A star-studded, phone-filmed Covid-19 PSA has been released on both social media and television. It features Ardie Savea, Hilary Barry, Valerie Adams, Anika Moa, TJ Perenara, Madeleine Sami, Willie Apiata, How to Dad’s Jordan Watson, Julian Dennison, Michael Galvin, William Waiirua, Raybon Kan, Kanoa Lloyd, Dai Henwood, Benee and Taika Waititi. Apologies if we’ve missed any out.
7.00pm: Two Auckland high schools have close Covid-19 connections
Both Marist College in Auckland’s Mt Albert and nearby Mt Roskill Grammar are dealing with Covid-19 cases with strong connections to the schools. Marist has had a staff member diagnosed, while Mt Roskill Grammar has had a parent return a positive test, days after participating in a Fiafia day.
Marist, a Catholic school for girls, has announced it will close for three days to enable a thorough clean, while its neighbouring primary will also close as a precaution. A skeleton staff will stay on at the primary to watch children whose parents cannot make alternative arrangements or are healthcare workers. The staff member who has tested positive is self-isolating, and Auckland regional public health staff are working with the school to ensure anyone who may have been exposed also self-isolates.
The Mt Roskill Grammar parent returned from Europe on March 12, prior to travel restrictions coming into force on March 14. The school has a previously scheduled holiday tomorrow, and is in the process of assembling its action and communication plan. The school told One News “MRGS is committed to ensuring the safety of its students and is currently in discussions with Ministry of Education and Ministry of Health as to how best to achieve this”.
5.45pm: NSW and Victoria signal looming lockdown
Australia’s two most populous states, Victoria and New South Wales, have signalled that a “shutdown” – broadly equivalent to New Zealand’s level four – is imminent. Victorian premier Daniel Andrews echoed an earlier statement by his New South Wales counterpart Gladys Berejiklian in announcing “a shutdown of all non-essential activity across our state to combat the spread of coronavirus”.
The total number of infections in Australia has surpassed 1,000, with growing fears for the health system’s ability to cope. Andrews justified the impending lockdown by saying that without it, “our hospitals will be overwhelmed and more Victorians will die”.
Essential services will remain open. “Victorians will still be able to go to the supermarket, the bank, the pharmacy and other essential stores, like petrol stations and convenience stores. Freight, logistics and home delivery are also considered essential.”
Andrews also noted that as part of the new rules, Victorian school holidays would be brought forward, starting on Tuesday 24 March.
4.40pm: Rest home staffer tests positive
Residents of Ellerslie Gardens rest home in Auckland have been placed in isolation after a nurse tested positive for Covid-19, reports Radio NZ.
The staff member worked two night shifts last week, a week after returning from overseas, and had no symptoms at the time they were working. They are now at home and recovering.
Heritage Lifecare Group, which operates the facility, say it will be taking additional precautions with staff to prevent further spread.
4.10pm: Commerce Commission urged to take flexible approach
The government has asked the Commerce Commission to “take account of the exceptional circumstances created by Covid-19 when monitoring business behaviour in coming weeks”.
In a statement, the minister of commerce, Kris Faafoi said: “The purpose of my request to the Commerce Commission is to make sure businesses can work together in ways that will allow them to provide things like grocery products and other essential goods and services to New Zealanders in a fair and equitable way … The government is aware that, as a result of Covid-19, sectors like supermarkets and telecommunications companies may need to work in a more collaborative way than the Commerce Commission would normally be comfortable with.
Stressing that this should not imply any tolerance for “unscrupulous behaviour where Covid-19 was used as an excuse for non-essential collusion or anti-competitive business practices, such as price fixing”, Faafoi said: “Now is not the time for strict competition rules to get in the way of common sense and legitimate collaboration.”
3.30pm: ‘Urgent need for more openness’ – epidemiologist
Sir David Skegg, an epidemiologist at the University of Otago Medical School and former chairman of the Public Health Commission, is calling on the government to be more transparent around the basis for the decisions being taken. “We need to know what rigorous scientific analysis and modelling underpin the strategy being followed here,” he writes in a post on Newsroom.
He adds: “For some weeks I have been concerned by repeated statements that the probability of community transmission of the coronavirus in this country is low. Not nearly enough testing has been carried out so far. Since testing has been heavily skewed towards people who have been overseas recently, it is hardly surprising that most of the cases detected had links to overseas travel.”
Meanwhile a trio of experts have stressed the importance of being selective around testing. “In an ideal world we would test all people with influenza-like symptoms even if they had no known contact with a case or travel, in order to prove there is no undetected community transmission. However this is impossible given current supply chain issues,” write associate professor James Ussher from the Otago University Department of Microbiology and Immunology, University of Otago, Dr Gary McAuliffe, medical director of Labtests and Dr Joshua Freeman, clinical director microbiology and virology and acting clinical director infection prevention and control at the Canterbury District Health Board.
In the note, published on the Science Media Centre website, they add: “The influx of test requests outside the current case definition is currently threatening to overwhelm our capacity to test at all. Labs are working extremely hard to increase testing capacity, but there are many pinch points and issues to be addressed and it is not a straightforward exercise for testing labs to scale up their operations.
“Messaging to the public about testing is very important. The Ministry of Health is doing the best it can under the circumstances, but the testing labs are in crisis.”
Meanwhile, Stuff reports that a group of doctors are circulating a petition calling for more radical action by the government, and have delivered it to director general of health, Ashley Bloomfield. The Spinoff understands a second petition is circulating, signed by hospital doctors.
2.15pm: GPs to swap to online and phone
Most general practitioner consultations will take place online or over the phone from tomorrow, reports RNZ. In-personal consultation would still be available to those who needed, but in most cases a phone call would precede that. According to RNZ, the College of GPs is expected to release details about the change this afternoon.
2.10pm: How the government is legally able to enforce the new restrictions
University of Otago law professor Andrew Geddis has written a superb piece of analysis detailing the various laws which allow the government to compel us to change our behaviour.
“The government also has made it clear that some of what they are saying is non-negotiable. For instance, when announcing that indoor gatherings should be kept below 100, the Health minister David Clark held out the threat of jail time and fines for anyone who didn’t voluntarily play ball. And after Bishop Brian Tamaki thundered that Destiny Church would carry on meeting regardless, the Director General of Health calmly noted that “the government does have powers to enforce the 100 maximum on gatherings. So if needs be, those powers will be used.”
What, then, underpins these assertions of governmental power? What turns their “it’s best if we all do this” message into a “you must do this, or else!” message? The answer lies in a number of pieces of legislation…”
1.15pm: 14 new confirmed cases in NZ, bringing total to 66
There are 14 new cases of Covid-19 in NZ, bringing the total to 66 (originally misstated as 67), with four probable cases. None of the new cases is thought to be the result of community spread.
Eleven of the new cases have a history of international travel. One is a close contact of another case. Two attended the World Hereford Conference in Queenstown, “which had a range of international and New Zealand delegates”, said Ashley Bloomfield, the director general of health, at a media briefing.
The cases are in Auckland (five), two each in Canterbury, New Plymouth and Waikato, and one each in Northland, Tauranga, Coromandel and Dunedin.
More than 1,200 laboratory tests were carried out around the country yesterday, bringing the total to more than 6,000.
Further investigation of yesterday’s two cases without a clear connection to overseas travel have still been unable to find such a link, adding to the likelihood of community transmission.
For people in areas with possible community transmission, Bloomfield said: “I understand people will be concerned about the risk of transmission, so I ask everybody in those areas to continue with good hygiene practices, physical distancing and seek advice if you have symptoms.”
Delegates to the Hereford cattle conference in Queenstown earlier this month are now being considered close contacts, as a precaution. They are being asked to self-isolate for a fortnight from the time they last had contact with any other attendee. Four attendees, including two New Zealanders, have tested positive.
Anyone who travelled on either of the Ruby Princess or Celebrity Solstice cruise ships, which visited New Zealand recently and have subsequently had passengers test positive, are asked to self-isolate for 14 days since they last had contact with other passengers of the ship.
Bloomfield said he did not believe any of the new cases were hospitalised, and that there was no one affected currently in ICU. When asked about long delays for those calling Healthline, Bloomfield said “remember that Healthline is there to give health advice. It’s not there for general advice about Covid-19, or about self-isolation. There is plenty of good information about that online.”
On the requirements for the current alert level, he said: “You’ll note that as part of level two, we are asking people over 70 and those with pre-existing conditions, such as chronic respiratory disease – including severe asthma, bronchiectasis and COPD – and those who are immunocompromised, to stay at home.”
10.40am: Covid-19 test in Sāmoa comes back negative
RNZ reports that a suspected case of Covid-19 in Sāmoa has come back negative, along with those for six other patients. Two tests remain outstanding.
Sāmoa yesterday suspended flights to Australia, joining other Pacific Islands already suspended from flying earlier in the week. For the time being there will be a two flights per week to Auckland, one operated by Air NZ, one by Samoa Airways.
10.30am: Ryman healthcare closes villages to visitors
New Zealand’s largest provider of retirement villages has made the decision to close them to visitors from 5pm today, with the only exceptions being the family of residents in palliative or end-of-life care. A statement published on its site read “we understand this may cause a degree of distress for residents and families. There is no getting away from this. But we think it is critical that we do it now while we have the chance.”
The company will continue to monitor the situation, and review it “as the situation unfolds”.
10.15am: ICYMI, on The Spinoff’s Covid-19 coverage
The Spinoff’s managing editor Duncan Greive wrote a note about The Spinoff’s response to the Covid-19 situation, focusing on the response of its staff, audience and the commercial realities.
“As much as I’ve been moved by our team’s response, two other groups have shocked me with the way they have gathered around us. Those groups are our Members, and our commercial partners.
Firstly, our Members. We have seen nearly 1,000 more people get on board through March. Some have even been in touch to offer extra donations. Knowing the trouble coming down the pipe from a commercial perspective, the fact our audience has wrapped its arms around us means more than I can say. (If you aren’t a member, but would like to become one, here’s where to do that).
That said, the response from a number of longtime partners has been similarly impressive. We have already lost clients, and it’s certain that will continue. Some businesses are tremendously exposed to this, and they are right to think of their own people first and foremost as this storm gathers. Yet others have approached us to try and do more work, or offer their normal slots up to institutions in need. When you’re bracing yourself for the worst, to have people – from small businesses like Unity, to listed corporates like Z Energy – reaffirm their commitment is deeply moving.”
9.50am: New package focused on Māori
The government has announced measures targeted at supporting Māori communities and businesses through the Covid-19 crisis. They include $30m targeted health funding for Māori, $15m for Whānau Ora and $10m for whānau Māori community outreach.
Of the health spend, associate health minister Peeni Henare said: “To protect our people, especially our kaumātua and kuia, we can’t solely rely on them engaging with the health system, but instead we must engage with our people, in their neighbourhoods, communities and homes.”
The funds are intended to support Māori provider networks to enable them to meet increased demand, boost workforce capacity arrangements for Māori providers, and develop guidelines to help Māori prepare for self-isolation, particularly when self-isolating as part of a large family group, provide financial support for prescriptions and health services, and tailor targeted communications to Māori.
Speaking to Jim Mora on RNZ’s Sunday Morning, Otago University public health professor Michael Baker appeared to doubt whether the newly-announced guidelines around hospitality venues would be enough to prevent the spread of Covid-19.
“In general, restaurants and cafes will be very difficult,” he told Mora. “There is a risk of transmission.” In a piece he recently co-authored for The Conversation, he suggested New Zealand consider a ‘pulse’ of “intense social distancing, including bringing forward the school holidays and temporary closures of most businesses, social meeting places and public transport” to try and arrest the spread of the virus.
He continued on that theme while speaking to Mora, suggesting that some time at level three or four is worthwhile. “The epidemiologists would be advocating for that… the light at the end of the tunnel is not that far away if we get that right.”
“The alert system sets out how we can stop the spread of this virus in New Zealand. To see how important our actions are, I want you to imagine you are part of an ever-expanding chain. Because people can spread the virus for a few days before they have any symptoms, each person who contracts the virus can unwittingly pass it on to several of their whānau, friends and colleagues. Then each one of them can unwittingly pass it on to several of their whānau, friends and colleagues.
“The good news is, we can do things that will reduce the chances of us spreading the virus. That means we can break these chains and potentially stop hundreds or even thousands of people getting Covid-19. Check out The Spinoff cartoonist Toby Morris’ excellent illustration to understand how individual discipline can have an outsize impact.”
8.00am: Bar restrictions cause lines; Hobbiton lays off nearly 250 staff
The unintended consequences of new guidelines for the hospitality industry were on display last night as queues formed in response to the hard cap of 100 on indoor venues, and the requirement that those entering must have their details noted for possible future tracing. Political editor at Tearaway magazine, Ethan Griffiths, photographed a queue on Wellington’s Courtney Place which showed clear contravention of recommendations around physical distancing.
Other NZ venues have recognised the immense difficulty of operating as usual while observing physical distancing, with Auckland’s Coco’s Cantina moving to a new model, drawing the approval of New Zealand’s chief science advisor, Julia Gerrard.
Shout out to Coco’s Cantina. Because Coco’s wouldn’t be Coco’s 2m apart. They’ve moved to takeaway and delivery. A wine while you wait and a contact tracing register – just in case. Ka pai 🌺. Tell your friends. See you on the other side. Order herehttps://t.co/nfCXCtyHmkpic.twitter.com/9SJ9FqII6m
Stuff reports continued violation of the requirement for self-isolation by recently-arrived tourists, with a group waiting until they were up Fox Glacier before informing the operator they had arrived after rules came into force. The guides flew them to police.
The looming economic impact was illustrated yesterday when Hobbiton, one of New Zealand’s most recognisable private tourist attractions, announced the layoff of 90% of its 266 staff. CEO Russell Alexander said in a statement that “This is a matter of public health and we felt we had a duty of care to our staff, to any visitors still coming to Hobbiton, to our wider community and New Zealand to minimise travel into the district and exposure to Covid-19.” And RNZ reports that the global economic shock will lead to delays in building materials, which will impact the construction industry.
7.45am: Cases soar in Asia-Pacific as Bondi closed
Australia surpassed 1,000 cases, and Sydney’s iconic Bondi Beach was closed on Saturday after thousands turned out, contravening the 500 person limit for outdoor venues. Thailand reported a record 89 new cases, while South Korea, previously seen as a model for reducing transmission, reported 147 new cases, its second-highest number in the past week.
It looks like the rumours that swept Australia and New Zealand about an imminent lockdown have arrived in Singapore. The misinformation began with a genuine press release in Malaysia, as we explored here.
The crisis continues to grow in the US, with the New York Times reporting more than 21,000 cases. New York state remains the hardest-hit by the crisis, with a total of 5,683 cases, and 43 deaths in New York City alone. Columbia University researchers are predicting that even if the US is able to cut its transmission rate in half, they would still expect to have 650,000 people infected in the next two months. Congress is currently negotiating a rescue package to deal with economic impact, expected to be in the region of US$1 trillion.
