Economic fog lifts a little, but this is not the time to hit the accelerator –

Beijing closes city’s largest wholesale food market after detecting seven locally transmitted cases over two days.

OPINION: “Businesses are crying out for one thing more than anything else, and that is certainty.”

So said Act Party leader David Seymour on Saturday, when he called for the Government to set “clear rules of the game” for the country’s border controls.

Specifically, he called for the Government to increase the throughput of managed isolation, either by increasing the number of places for quarantining or shortening the time required.

The snag is businesses also want certainty that the country won’t be forced back into a level 3 or 4 lockdown.

And they should also want certainty that Covid-19 won’t return to New Zealand and then run rampant.

Given we can’t have all three “certainties”, the choice becomes which two we need most – certainty about more open borders, no more lockdowns, or no community transmission of Covid-19?

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People will have different views on the “trade-off”, if it can be called that.

But those views are likely to be influenced in turn by a whole separate set of uncertainties, some of which should start to resolve over the next few months.

Border control has become the frontline in the political fight over NZ's response to Covid-19.


Border control has become the frontline in the political fight over NZ’s response to Covid-19.

An obvious one, is whether and when there might be a vaccine or other effective health treatment for the coronavirus.

Another is what we learn from overseas about the minimum level of restrictions that are required to ensure community transmission dies out – what’s needed to get and keep the reproduction rate of the virus “R0”, below 1, in other words.

If vaccine efforts failed, for example, the case for relaxing borders sooner might become stronger, but we are not at that point.

Seymour may be right that the Government hasn’t yet taken us through all its “what if” calculations.

But even if it did, that would hardly amount to certainty, given those still-big unknowns.

The same might be said for the narrower economic response to Covid-19.

BNZ chief economist Stephen Toplis candidly wrote in May that “no forecast is currently worth the paper it is written on”.

Since then, the fog has started to lift a fraction on the likely economic impacts of the coronavirus pandemic, and the short amount of the road that we can see ahead is looking a bit smoother than feared.

BNZ statistics for early June suggest May's strong bankcard spending figures may not be a one-hit wonder.

Chris McKeen/Stuff

BNZ statistics for early June suggest May’s strong bankcard spending figures may not be a one-hit wonder.

“Consensus” forecasts released by think-tank NZIER on Monday are for annual GDP to decline by 9 per cent in the year to March next year.

But weekly statistics suggest the export sector has been resilient and that should show through in improved balance of payments figures due out on Wednesday.

Retail spending data released by Statistics NZ last week showed that Finance Minister Grant Robertson was correct in his hunch that consumer spending would bounce more than expected post-lockdown.

Consumer spending on bank cards in May was higher than a year ago if the hospitality sector, which was still largely shutdown in May, is taken out of the equation.

That is even accounting for a steep drop in fuel purchases and prices.

Next month’s data will help show the extent to which that bounce was just a reflection of pent-up demand as consumers bought items they were unable to buy during the level 3 and 4 lockdowns.

But there are already some encouraging signs.

BNZ said on Monday that total spending on its own cards during the week to June 5 – while New Zealand was still at alert level 2 – was up 7.4 per cent on the same period last year.

ACT Party leader David Seymour says the Government could do more to provide 'certainty' to businesses.

Ross Giblin/Stuff

ACT Party leader David Seymour says the Government could do more to provide ‘certainty’ to businesses.

Westpac noted on Monday that a number of economic indicators were lifting.

It is now forecasting unemployment to peak at about 8 per cent, rather than close to the Treasury’s latest forecast of 9.6 per cent.

The elimination, for now, of the “worst-case” economic scenarios has been reflected in the Government under-spending on some of its relief programmes.

That in turn has seen it broaden access to the second $3.2 billion round of wage subsidies to include firms that experience a 40 per cent revenue drop, and not just those showing a 50 per cent decline.

If the mildly positive developments continue, the wisdom of the Reserve Bank maintaining its current trajectory and spending right up to its $60 billion cap on quantitative easing may come into question.

BNZ’s Toplis has advocated since May for the central bank to “experiment” with some moderation in the pace of its bond purchases, questioning whether the central back may have leapt into QE with “an excess of enthusiasm”.

But Infometrics economist Brad Olsen argues that taking the foot-off the QE accelerator right now would be risky.

Given that the US Federal Reserve has embraced “QE Infinity” by placing no dollar cap on the assets it is willing to print money for and buy, winding back QE prematurely here risks put a rocket under the New Zealand dollar.

So New Zealand remains, once again, hostage to the international environment.

The knock-on effects of rising Covid-19 cases in several US states, a new outbreak in Beijing, and continuing jitters on Wall Street after its 5 per cent decline on Thursday loom large this week.

In this environment, “certainty” can only be an illusion.

But the more encouraging economic data suggests the country can afford for the Government not to gamble and rush into policy decisions – including decisions about the border – that can’t be reversed.

The uncertainties about Covid-19, after all, won’t go on forever.



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