Our lifeboat floats in a sea of pandemic

New Zealand’s economy is performing better than expected, with freedom of movement thanks to the lack of Covid-19 community transmission, better spending activity, and fewer job losses than feared.

But as the global economy continues to deteriorate, major risks hang over some of our key outward-focused pillars that we need for a broader economic revival. In recent weeks, stronger-than-expected indicators of activity have reinforced an improved view of the domestic economy.

Paymark reports shoppers are still active, with a 0.4 per cent per annum rise in spending. Housing activity remains positive, with ongoing rises in asking prices for houses. Job losses have been limited, and the wage-subsidy extension is supporting local businesses that are still struggling.

Labour market data, in particular, has painted a surprisingly upbeat view of conditions around the country.

But as well as New Zealand is doing here at home, we cannot escape the fact that our economic progress is still inextricably tied to the wider world.

And globally, the Covid-19 pandemic is getting worse, not better. The US has seen cases and deaths rise again as states reopen, the UK is reintroducing restrictions, and Australia has seen a swift reversal of fortunes as Victoria enters lockdown to control an outbreak. Discussions of a vaccine continue to provide a glimmer of hope, but it still looks a long way down the track.

For New Zealand, the continued rise of Covid-19 cases globally, and the re-imposing of restrictions across a range of countries, is concerning. Without support from better global demand, New Zealand will struggle to recover towards more usual levels of economic activity over the next few years.

International tourism remains off the table, with any ideas of a trans-Tasman bubble popped for the time being. There still exists a hole in the $16.2 billion that international tourism exports brought in throughout 2019 – something that the $6.7b previously spent by Kiwis overseas still cannot plug. This lack of international visitors will continue to be a significant restraint on economic activity returning to normal, particularly for some regions. There are also questions about whether domestic tourism spending by Kiwis, totalling nearly $18b last year, has been negatively affected by the pandemic.

Education spending from overseas also seems to be off the table for the foreseeable future. There appears to be very little support, and even less interest, in getting New Zealand’s $5.1b international education sector functioning again. Disappointingly, the recent $51m announced for the sector provided very little to tertiary institutions. Expectations for any allotments for overseas students to come into New Zealand and quarantine have been firmly rebuffed.

Global trade, although performing well at present, is unlikely to hold up as well going forward. Lower economic activity across the world will limit both household and business budgets internationally, decreasing spending on New Zealand exports overseas. Already, total goods exports from New Zealand remain 1.7 per cent per annum lower in the June quarter, as global restrictions limit trading activity. One of our key trading partners, China, reported in June that spending postlockdown was still lower than in 2019. New Zealand’s global trade exports will not avoid the downturn that the world economy is experiencing.

That’s not to say that New Zealand is doing anything wrong in our global interactions. But it is important to bear in mind, given trade’s importance to the New Zealand economy, that we are not immune to the plight of the globe. The global downturn will hit us, soon enough, even if our domestic economy continues to stand strong for the time being.

A few of New Zealand’s trade-focused economic pillars present a troubling picture that getting the economy operating at pre-pandemic levels remains out of reach. We’d be wise to remember this as we continue to celebrate New Zealand’s domestic economic revival.

New Zealand is a lifeboat bobbing in a sea of pandemic, and that means that we can’t afford to forget or ignore how hopeless the global economic picture is – and the waves of instability that it will send our way.

As well as New Zealand is doing at home, we can’t escape the fact that our economic progress is still inextricably tied to the wider world.