Waikato: Into Recession…and Out The Other Side
By Russ Rimmington
As the COVID-19 pandemic sweeps around the globe, the Waikato region – like the rest of New Zealand – has gone into lockdown. This doesn’t mean all economic activity has stopped. Essential production and services continue, and thanks to technology many people are able to work from home. Still, a large part of the workforce simply cannot work – perhaps as much as half of it – even if there is demand for their services. Tourism, which provides one job in every 10 in the region, must essentially stop for now.
The relatively high importance of the food production sector in the Waikato region – especially, but not only dairy – means we are better off than some. Regardless of what happens to most other industries, food production must go on and food supply chains, from farmers and growers, to transport and logistics, to processing and manufacturing, to retailing, must continue to function. This is important to ensure our supermarkets stay stocked, but also to keep the economy on life support.
Encouragingly, New Zealand’s merchandise export revenue is still holding up, led by dairy products. The quantity of milk powder exported in February was about the same as in 2019, but higher prices meant the total value was 28 per cent higher. Logs and wood product exports, on the other hand, were down by a third.
The largest recessions in recent times, in 1991 and 2008-09, saw New Zealand’s annual gross domestic product fall by around 2 per cent from peak to trough. During the Great Depression the fall was estimated to be more like 15 per cent over the 3 years from 1929. Given some quite reasonable assumptions, it is conceivable the fall will be larger than that by the end of 2020. The pandemic situation is unprecedented in recent history, so we need to be careful about what lessons we learn from the past, and what policy response is required by our public sector.
A key difference this time is the underlying cause: a public health emergency. In the Great Depression, or the Global Financial Crisis, stimulus from monetary and fiscal policy was important in underpinning aggregate demand and re-igniting economic activity.
What to do?
The lockdown is different. Measures designed to increase spending and maintain demand could be counter to efforts to reduce the spread of COVID-19, such as physical distancing, and would potentially prolong the economic effects of the pandemic. For now, the aim is to first ensure the public health system is resourced to fight the pandemic; second to keep essential services running; and third to keep the economy on life support and make sure people are able to access the goods and services they need.
These things are sensibly being led by central government. But local government also has a part to play. We must maintain essential services. Beyond this, when setting our annual budgets, we should recognise that many ratepayers will lose their jobs and businesses and may struggle to pay. Waikato Regional Council has already indicated we’ll strive for a zero per cent increase in rates.
When we emerge from the lockdown phase, we might then take some lessons from past crises. It will take time for business activity to be rebuilt and the unemployed to find jobs. A retreat into fiscal austerity at that point may prove counterproductive, and the government should still leverage its balance sheet to underpin demand to hasten recovery. Having said that, it should be recognised that nobody knows how long this crisis will last. And while recovery will come, when it does, the global economy will be a different place.
- Russ Rimmington is chair of Waikato Regional Council. The views are his own.