How we blew it
By the end of this week New Zealand will officially be “in recession”.
On Thursday, Stats NZ will release the GDP figures for the second quarter of the year (to June 30).
They will confirm that the economy shrank for a second consecutive quarter — which is how recessions are defined.
So that will be it, we’ll officially be in recession for the first time in 11 years.
Of course, whether it feels like a recession to you will depend on personal circumstances.
For some, that time came much sooner. For others, it may be still to hit.
It is certainly an unusual recession.
Whatever the GDP numbers look like (and they are likely to be simultaneously ugly and better than expected) they will hide the twospeed nature of this downturn.
With borders closed, some parts of the economy have been effectively wiped out.
For those dependent on international tourism or education, there is little to be done but hibernate and hope.
Other service sectors like hospitality and entertainment are also being hit very hard.
But some businesses are doing okay. Retailers in house- and gardenfocused sectors are benefiting as money that might have been spent on travel and entertainment gets redeployed.
The tech sector is booming. Over time, we may see the pain even out.
The worst impacts of recession are often felt long after the initial slump, when economists have moved on to measuring the recovery.
If I had to pick it, I would say that in six months, the economy is likely to feel worse than it does now.
Regardless, when the history is written, this week’s data will mark the end of New Zealand’s second-longest post-war economic boom.
It is surpassed only by the period from 1952-1966.
The arrival of recession will highlight a huge failure of economic policy across the entire political spectrum.
That failure is not the recession itself.
That bit was inevitable.
The Covid-19 pandemic is a unique and terrible thing. It’s a killer and is wreaking havoc with the global economy.
You can argue at the margins about policy choices in the face of the pandemic, but there was no way around this recession.
But we also know that if it wasn’t Covid-19 that ruined the economic party, it would have been something else.
New Zealanders have at least learned that much.
The inevitability of external economic shocks has driven the thinking of the past several finance ministers, including the incumbent.
They’ve kept a close eye on debt and should be commended for that.
The Government’s strong fiscal position has been a crucial asset in dealing with this pandemic and protecting jobs.
But when it comes to improving the underlying structure of the New Zealand economy, we blew it.
This now-deceased period of economic calm sadly represents a lost opportunity of historic proportions.
Looking back through the Herald archives, I found these words I wrote in 2014 — at the time we were being lauded as a rock-star economy:
“Now, while New Zealand’s economy is in good shape, is the time to get serious about transforming it.
“It is not enough to simply enjoy the golden weather and survive the storms if we want to grow real wealth across the social spectrum in this country.
“Time and time again, we’ve seen economic progress towards a wealthier, more equitable country cut short by a commodity slump or a global economic crisis.”
While I’d like to claim some sort of prophetic genius, these thoughts are hardly unique.
Every economic commentator in the country wrote similar things throughout the past decade.
The sentiment is as old as time . . make hay while the sun shines.
Now we’re hearing renewed calls for economic transformation and overhaul of fiscal and monetary policy.
These calls aren’t necessarily wrong. They are just ill-timed.
Low interest rates are boosting the share market and holding up house prices.