The worst recession we never had – why economists make weather forecasters look good.

In February, I interviewed a fund manager from Hong Kong who said that most countries didn’t even need to worry about the prospect of coronavirus – it was just a China thing that would blow over.

A month later, borders were closed and we were heading into lockdown. Nothing has been quite the same since.

But while he was the first this year to give me a prediction that was promptly proved wrong, he wasn’t the last.

ANZ chief economist Sharon Zollner cites a joke: Economic forecasters exist to make weather forecasters look good. ‘‘Weather forecasters are going to look amazing this year,’’ she says.

In March, ANZ economists were predicting unemployment to hit 11 per cent, house prices drops of up to 15 per cent and core Crown debt to lift to up to 50 per cent of GDP. Treasury said it could peak at 56 per cent.

It wasn’t clear at that point how well the country could contain the virus nor how long lockdowns could last. The Reserve Bank posited a scenario in which house prices could halve.

By May, economists had started to pull back. Month by month, the picture started to improve.

By September, ASB’s team were predicting that, actually, house prices might not drop at all and could be higher next year than last, buoyed by the incredibly low interest rates and cash flowing through our economy.

Last week, we found unemployment was at the light end of expectations. This week, we discovered the Government books in much better shape than expected: Crown debt-to-GDP at 30.5 per cent, and the deficit of $7.6 billion, $2.6b lower than forecast.

When the Reserve Bank slashed interest rates in 2008, house prices still fell 10 per cent. But the REINZ statistics released on Thursday put house price inflation at nearly 20 per cent. Auckland’s median hit a record of $1 million last month.

Why were the forecasts of economic doom so wrong, and was this the biggest recession we never had?

Infometrics chief forecaster Gareth Kiernan remembers people calling in March, asking how much his team was going to revise down its forecasts for building activity. There was pressure to downgrade, he says, and a sense of panic. There was a widespread assumption that this would be worse than the global financial crisis – the only question was how much harder the blow would be.

There was no data to call on to give insight into what might be coming. The only really comparable pandemic in New Zealand was 100 years earlier, when the economy was quite different – and there had been a major war tangled in that data.

Zollner says the only thing that was really clear was that the models economists had were useless.

The historic drop in GDP in the second quarter wasn’t a normal recession because it didn’t reflect choices people were making of their own will. The ‘‘stop-start’’ was imposed on the country – so the models that would normally show what to expect out the other side were wrong.

But economists being forced to offer some guidance on what might be ahead had to come up with something.

When the wage subsidy proved more effective, and lockdown measures took effect more quickly than expected, predictions had to be revised, fast.

Kiernan says the Government result particularly reflects the strong economic growth, employment and spending result that has been evident since the first lockdown lifted.

The reduced spend on the wage subsidy is also a reflection of how well the economy has gone, he says.

But does this all mean we’re in the clear? And should we have applied more caution to predictions of doom – coming as they did in a time of unprecedented lockdown, when households and small businesses felt they were on increasingly uncertain ground?

The virus is still an issue around the world and New Zealand borders remain closed. Thursday’s news of a new community case in Auckland is evidence of how quickly public sentiment can turn. Our surge of willingness to spend shows signs of slowing.

Zollner says the risks are more balanced now even a month or two back – and provided the vaccine news remains positive, New Zealand’s elimination strategy may guide us around severe economic damage.

But Kiernan says it’s too soon to say. ‘‘We still struggle to see how the international tourism sector can be decimated and for it not to have a significant effect on employment, economic activity, spending, and therefore the Government’s fiscal position. On that basis, we’d expect the negative fiscal effects to come through more noticeably next year, but that is contingent on a deterioration in the labour market.’’

If economic forecasters exist to make weather forecasters look good, ‘‘weather forecasters are going to look amazing this year’’.