Planning for the bounce-back has to start now
We need to treat the coronavirus like a natural disaster as it fast becomes a worstcase scenario for New Zealand.
The Government response to coronavirus is as expected. Don’t panic, don’t stockpile and we’ll try to mop up some of the financial mess on a targeted basis, industry by industry. It feels in line for the stage of market shock we’re at.
While it feels reasonable, all we are doing is waiting behind the problem and following it with a mop. It’s sentiment signalling with limited detail.
With so much going on, it’s difficult to get ahead of the problem financially. Authorities juggle border control, community isolations and there is very little torch on the firm-by-firm issues of economic pain.
What does it mean to get ahead of a problem?
It means imagining what things are like once coronavirus has taken a grip, done its damage and we are coming out the other side into the post-virus hangover period.
It means thinking ahead to how our economy will need to look when it enters recovery mode. Ideally we want a bounce, not a long drawn-out haul back up. This is tricky stuff when we haven’t even plummeted yet.
We must first consider some difficult concepts today:
1. The economic shock of coronavirus should not be underestimated. We are in a physically remote global position and need our own plan.
2. This is fast becoming a worstcase scenario we are dealing with. Taking a wait-and-see approach to confirm this only has downside. There are no second chances for the economy, when you react too slowly.
3. Preparing for the worst doesn’t mean losing face if it doesn’t happen.
4. The Government needs to enter a phase of aggressive spending. Why should we have the confidence to do this? Because this is a virus. It will have a vaccine and a cure. We need to act now like that day will come. With a controlled virus, supply chains can reopen, tourists can return and it can all happen very quickly if we are positioned for that.
5. There is nothing wrong with panic. A little bit of stockpiling is the least of anyone’s concerns and it eases anxiety. Fear makes people listen and compliant. It’s a natural cycle that leads to calm. Real panic is when we do nothing and stay home. That’ll hit us straight in the flat-white.
Then we must consider some difficult concepts about the future:
1. Coronavirus could have killed many people, including Kiwis.
2. Post-virus there will be a giant hole in our tourism industry, export industry, interrupted supply chains, our dollar will be trashed.
3. This won’t go away in six months and could be a one to twoyear shock.
4. It could be a multi-sequence event (to borrow a phrase from the earthquakes). Tourism is suffering already, but it could freeze in the second phase. We are in a honeymoon period where holidays were purchased pre-virus and have medical and flight disruption insurance cover. Tourism wheels are still turning.
5. After the insurance run-off period, long-haul customers won’t arrive uninsured for coronavirus into a country with limited ICUbeds
and far from home. Fat chance when they all hold EHICs cards (European Health cards) with reciprocal agreements between countries. We are a premium price flight destination and that’s a barrier too. It’s lowerrisk to holiday within their own continent. Our new tourism market is very clearly ourselves and the Aussies. We have a trapped captive audience who also won’t be leaving home without coronavirus insurance.
The decisions we make today need to feed the bounce. We can’t let tourism and export companies fail. We can’t let them take on debt that will drag their future expansion. We can’t overly restructure the workforce into different industries. How does tourism bounce when the jet-boat driver is now building bridges? Restructuring employment is a recipe for getting stuck in the treacle when the vaccine arrives.
This is no ordinary economic shock and doesn’t need to be treated as one.
We need to take a step back and view this like a natural disaster, in the same way government money propped up Christchurch and EQC funds were cleared out and paid for earthquake damage. We need to be prepared to go into debt as a country to insulate our businesses and jobs.
Doing so will create a bounce – a quicker recovery at the other end.
Public opinion is crucial and we all individually worry about our jobs and the survival of our businesses. When job and business confidence declines, the economic virus is contagious as we shut our wallets to protect ourselves. The multiplier effect of our spending being the next person’s income is massive.
Of course the Government shouldn’t protect profit levels for shareholders, but it should protect jobs and wages and make payouts feel like a form of employer wageinsurance that give us all the confidence to keep spending. A zero tax rate for the tourism, hotel and restaurant industries with immediate effect would be a bold statement too.
The announcement of a large virus-response fiscal envelope is needed now.
Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.
Preparing for the worst doesn’t mean losing face if it doesn’t happen.