Sir John Key offers his advice on Covid-19
Covid-19 disruption is on a scale no one has ever seen before, former prime minister Sir John Key says, but it should be remembered that there is ‘‘a light at the end of the tunnel’’.
Key spoke at a Trans-Tasman Business Circle virtual event yesterday with Nikesh Arora, chief executive of Palo Alto Networks. Key is a director of that business.
‘‘People say ‘the GFC cubed’ and that’s an accurate reflection of the scale of the loss of economic activity over such a short period of time,’’ Key said. ‘‘It’s very easy to be very, very negative – with the sheer pressure on the system you wonder whether we will ever come out the other end.’’
But he said life was different and science had moved on since previous global pandemics. Work was well under way towards a vaccine. ‘‘The end game is the vaccine. There will be light at the end of the tunnel.’’
While in the global financial crisis (GFC), banks were not in good shape, they were now well positioned to help businesses with strong balance sheets. The monetary system was being supported by central banks around the world.
‘‘Governments are spending at a ferocious rate.’’
Key said the crisis offered an opportunity for businesses to look at the weak parts of their operations, which they might not have had to front up to in a good market.
‘‘All of our businesses have a degree of inefficiency. It’s like elections – you learn more from a loss than a win.’’
Businesses had a chance to demonstrate that they cared about the people who worked for them.
‘‘It may be the company is so stretched it’s relying on the wage subsidy scheme. It may be that the company can afford to pay full wages of 80 per cent but it’s a tremendous opportunity to do the right thing by people.’’
Businesses would need to consider their wider reputations, too. ‘‘You can come out of this looking good or a bit rough.’’
Sentiment would be the most important factor in how well the economy recovered from the disruption, Key said.
‘‘When we come out of the lockdown period, do we have confidence to invest in businesses and in people? We have to accept it is going to take time for confidence to rebuild.’’
Interest rates would stay low, he said, supporting investment activity and property prices, but job security and income security would be the big problems.
New Zealand would not easily make up the hit to GDP it had suffered, he said. Key estimated it at $3 billion to $4b in lost GDP each week.
‘‘It starts adding up and GDP is just gone. That doesn’t mean that in two, three, four years down the track we don’t recover and do well … [but] some companies simply will not make it out the other side.
‘‘The difference between this and other situations we’ve faced before is this has an end game, with the vaccine.’’
Key said lockdown was probably the right response to the virus, given the information available about it. He said the amount of debt governments around the world were taking on was a concern. ‘‘What does that mean for our ability to cope with another crisis that comes along?’’
Key said it was easier for governments to run deficits than surpluses because surpluses created pressure to spend.
Getting out of deficit would be a global problem, he said.
‘‘We have to accept it is going to take time for confidence to rebuild.’’