Long way from being out of the woods yet

The sense of calm and normality pervading the country for over three months has been shattered by the latest cases of community transmission the country. Until today New Zealanders have been going about their everyday lives, most of them still with jobs and being paid, at least until the wage subsidy ends, while the major concerns appeared to be what Judith’s raised eyebrows say, which political poll is closer to reality, and how many more people would break out of quarantine. Suddenly the media has a lot more than the election to get its teeth into.

 

Cars have been selling faster than ever, house prices remain steady, people have been able to eat out and travel round the country, enjoying local tourism experiences instead of flying round the world, and agricultural export prices have held up reasonably well. It seemed at first glance as if all was right in our little corner of the world. But the latest events have proved this may just be the calm before the storm which could be brewing in any number of different ways. While optimism is great, it would be as well to anticipate some of the risks facing New Zealand and ensure there are strategies to manage them.

 

The most obvious danger, now a reality, is the re-emergence of coronavirus community transmission, as distinct from isolated cases in quarantine. The South Korean visitor who travelled between both islands for ten days before testing positive on arrival in Korea has already raised many questions about where, when and how it was contracted, quite apart from the impossibility of robust contact tracing; yesterday’s Auckland family case, involving four people, two work places and a trip to Rotorua, as well as a child at primary school, emphasises how difficult contact tracing quickly becomes. The outbreaks in Victoria, followed by New South Wales and Queensland provide ample evidence of how easily the virus spreads from a low base. If elimination remains the goal, it is crucial to toughen up on the testing and contact tracing regime.

 

The economic and psychological impact of going back into lockdown, even for a short time, will make everybody nervous about a breakdown in immigration security and control of isolation facilities. The government’s key responsibility is to ensure a watertight border and quarantine regime until either an effective vaccine is available or the pandemic is somehow brought under control. As Trump has demonstrated very successfully, wishful thinking doesn’t work.

 

As a trading nation, the other major risk is a prolonged and deep global recession affecting all markets which will hit demand for what we produce including primary produce, in addition to the almost total exclusion of overseas visitors in the form of tourists, international students and migrant workers. Exports contributed $80 billion to the New Zealand economy in 2018, comprising approximately 28% of GDP, with primary sector exports making up 58% of this. International tourism accounted for 20%, other goods and services exports 17% and education about 5%.

 

Therefore the immediate effect of the pandemic is to wipe out a quarter of economic activity, unless the border reopens, the government prevents it with a combination of subsidies, grants and loans, or domestic consumers pick up the slack. However reduced export earnings will inevitably have a flow on effect on earnings and employment in other sections of the economy not directly involved in exporting. The success of the fiscal programme designed to mitigate the effects of a downturn depends to a large extent on how well it is targeted which inevitably involves making the right choice of industries to support. The loan to AJ Hackett bungy, the scattergun approach of the Provincial Growth Fund and Grant Robertson’s readiness to support the rugby championship in New Zealand (before other immigration priorities are addressed) do not provide great confidence good choices will be made.

 

Against this backdrop, agriculture assumes huge importance as the one remaining working piston in the export engine which makes it essential for the government to encourage and support the sector, as it tries to compensate for the demise of other export industries. Meat processors performed extremely well during the last lockdown, maintaining production in spite of social distancing restrictions and inevitably slower chain speeds, with minimal outbreaks of Covid-19. This current lockdown may prove to be short-lived, although there is no guarantee this will be the case, but fortunately this is the low point of the season. Dairy will be more affected with calving under way and milk production ramping up, but staff proximity is less of an issue.

 

Maintaining international trade relationships takes on a new dimension, notably treading an exceptionally fine line with China which may choose to penalise us for the removal of our extradition agreement with Hong Kong. Penalties could range from the Chinese Embassy’s official statement issued late last month to selectively applied delays at the Chinese border or even an outright ban on certain products or exporters. While it makes good sense politically and ethically to take a stand on this issue, it runs the danger of damaging our economic interests at a vulnerable time.

 

It is also critical for New Zealand to wean itself off its reliance on imports which consistently outstrip export receipts. Domestic instead of overseas tourism is the first logical form of import substitution with no alternative on offer and hopefully Kiwis will explore their own country, as has been the case so far. But the economy will need a lot more than a short term lift in domestic tourism, new car sales and eating out to avoid the impact of a significantly higher unemployment rate and social welfare budget. The heavy advertising campaign by Harvey Norman suggests retail is already suffering a decline in consumer spending which might also reduce the import bill for whiteware and luxury goods.

 

The general election next month is an unfortunate distraction from the serious matters threatening the economy, while the media races to cover largely irrelevant personality driven issues. National claims to have the strongest team, best equipped to manage the economy, but recent events cast serious doubt on that. Labour has generally been cautiously competent in its response, in spite of NZ First’s successful attempts to scuttle some of its policy planks. The Greens’ ideology induces nervousness at the prospect of them gaining more influence after the election, but if Labour wins with an increased share of the vote, the degree of influence may be limited.

 

On balance it would be preferable to elect the government with the best strategy to address the challenges facing the country. I am not convinced this election campaign will help us make that choice. We are a long way from being out of the woods yet.

 

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One Response to “Long way from being out of the woods yet”

  1. Rural round-up | Homepaddock Says:

    […] Long way from being out of the woods yet – Allan Barber: […]

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