Editor’s note: BayBuzz is pleased that Business Hawke’s Bay is sponsoring our coverage of the Bay’s economic scene, beginning with the BayBiz section in our Sep/Oct magazine. Lest readers fear this will be a ‘rah, rah’ exercise, read on!
Smile, the worst is yet to come
COVID-19. A seemingly innocuous phrase. It didn’t have a lot of meaning or relevance to New Zealand until Prime Minister Jacinda Ardern went hard and early, imposing Level Four lockdown restrictions, unprecedented in our lifetime.
The impact on our way of life and business communities was immediate. Non-essential businesses closed, parents tried to juggle home schooling with remote working (a challenge!) and preserving our bubbles became all important. Economists up and down the country issued dire predictions about COVID-19’s long term impact. And we prepared for the worst.
Our Government responded with a range of support measures to keep business from going under, such as the wage subsidy, mortgage holidays and preferential loans for businesses, and increased funding for business and export support services and the like.
Our regional economy, which was going gangbusters in the lead up to lockdown, was now in freefall. We said goodbye to international tourists and students. No-one really knew how long the fall would be, or how hard the landing. Would the recovery curve be v-shaped, u-shaped or even w-shaped with a double dip?
Early predictions for COVID’s impact on the local economy were grim, with Hawke’s Bay staring down the barrel of an estimated 7,000 job losses, as well as business failures, a large decline in regional GDP and a $320 million hole in our economy. Storm clouds aplenty, but tempered by a silver lining; our strength in primary production, a strong healthcare sector, and relatively less reliance on international visitors and students, insulating us from the worst impacts of COVID-19.
Still, the next 18-24 months are going to be tough.
With the curve flattened, lockdown restrictions eased down to Level One in early June, much earlier than anticipated. More than two months later, with borders closed and COVID-19 all but eliminated from our shores, we find ourselves in some kind of parallel universe. Offshore we see a variety of responses to the global pandemic ranging from aspirational to the downright alarming. At home, Kiwis seem to have adapted quite well to the ‘new normal’, and the national mood seems positive if spending and confidence measures are anything to go by.
In the Bay, we have seen some encouraging data. Near record sales of luxury cars in June. A vibrant hospitality scene. Tradies reporting a surge in home renovation projects, and pleasing consumer spending patterns, with Hastings District Council confidently reporting that its economy is bouncing back.
Is this surge of activity, just pent-up demand that couldn’t be met during lockdown, or spending of money allocated to an overseas trip that now can’t happen? Is it a bounce, or is it the beginning of a real and sustained recovery? Like many things related to this novel coronavirus, we just don’t know.
What our expert economic advisors are saying as recently as July, is that our economic outlook remains bleak. There are substantial concerns about the global economic outlook. As a small trading nation our fortunes rise and fall with the global economy.
Gareth Keirnan, chief economist at Infometrics warns that the world faces the worst mix of outcomes – short term economic pain caused by lockdown and longer term problems stemming from a mix of official incompetence in containment measures and ongoing fear of the virus. Global growth projections continue to be revised down, and that’s bad news for New Zealand. If COVID-19 problems hang around and global optimism about 2021 begins to fade, so will our export growth potential. A strengthening Kiwi dollar is not helping our export returns.
What happens over the next few months will be crucial. Currently there are more than half a million jobs nationwide supported by the wage subsidy. What will happen when the second round of the subsidy rolls off? Infometrics predicts that job losses will mount further and a likely continuing stream of redundancies throughout much of 2021 as businesses struggle with persistently weaker demand.
Locally, there has already been a sharp increase in numbers receiving the Jobseeker Support benefit from 5,000 in March to 7,500 at the end of July, but that doesn’t paint a full picture. If one spouse is still working, it’s unlikely a job seeker benefit can be claimed by the other. These figures also exclude people who are claiming the COVID-19 Income Relief Payment (CIRP), people who would otherwise be claiming Jobseeker Support, which could bring the number of people on an unemployment benefit closer to 8,000.
There has also been an increase in underemployment, where people can’t work the hours they would like, from 4.5% in the June 2019 quarter to 5.7% in the June 2020 quarter*, and an increase in the under-utilisation rate, a broader measure of untapped capacity in the labour market, from 11.8% in the June 2019 quarter to 13.5% in the June 2020 quarter*.
These negative changes in the labour market will force consumer caution; people won’t want to spend big or unnecessarily if they’re not confident about future pay cheques. The threat of a second COVID-19 wave and Auckland’s lockdown and its flow-on effects only add to the stress on business and community uncertainty.
There’s been a lot of talk about whether the recovery will be v-shaped (a steep downturn, followed by an equally steep upturn) or u-shaped, where economic activity remains lower for longer, or even a w-shaped (potential double-dip). The smart money is on a longer, slower recovery.
What’s stopping the economy from recovering and gaining genuine momentum? Infometrics says that too much uncertainty about the international economic outlook, a lack of clarity on when and how border restrictions might ease, continuing job losses and lack of investment are things that stand between where we are now and a recovering economy.
Although recent data has been encouraging, as support measures roll off we are going see the true economic outcomes of the pandemic. As Infometrics so tellingly puts it: “We are at the end of the beginning, not the beginning of the end.”
Sure, let’s celebrate the mini-milestones of consumer spending, the success of the Baycation campaign and more than 100% growth in advertised jobs.
But let’s also not get too Pollyanna-ish. Going local can only get you so far. We must look to the horizon and beyond, and not get too comfortable with where Hawke’s Bay and New Zealand is at. We can hope for the best, but we should prepare for the worst, for it is likely yet to come.
*Hawke’s Bay/Gisborne combined