Is New Zealand Winning Against Covid-19? (Covid-19 Update #12)
Covid-19 Update #12 – 21st April 2020
Peter Flannery CFP AFA
“If you have one economist on your team,
it’s likely that you have one more than you’ll need.”
New Zealand has made great progress against COVID-19, particularly when you compare it to many other countries. The impact on the economy in New Zealand will be significant. We all know that because unless we are working in essential services, we are probably at home, either waiting for the word when we can return to work, or indeed are working from home (unless the need to ‘work’ to pay the bills has vanished).
At the risk of stating the blindingly obvious, the economic impact on the New Zealand economy will be significant. The same can be said for the global economy too.
From a pandemic perspective, I believe New Zealanders can hold their heads up high and be proud of what has been accomplished already, although it is not over yet. I know everyone has an opinion about how Jacinda Ardern, and the government, are handling things. There is no doubt that the Labour Party, including Jacinda Ardern and her team, have done well. I feel comfortable knowing that they are in charge, achieving the results that I suspect most of us want anyway.
The above chart shows Coronavirus infection activity, as at 20 April 2020.
The number I am liking is the blue square on the above chart, which shows the high number of those recovering from the Coronavirus.
The above chart shows the age death rate in Ohio, USA, which apparently is similar to charts from other parts of the US and other countries.
The evidence is clear. Age is a risk factor, as the above chart shows; however, it is not quite as simple as that – see pie chart below.
The above pie chart highlights the correlation between the number of illnesses per person and the death rate.
Whilst old age is certainly a factor, it appears that one’s state of health or the number of illnesses that are currently at play is also a significant contributor, along with age, as to the seriousness of the impact of catching the Coronavirus.
How about this for a bubble?
From an economic perspective, Jacinda Ardern and the Labour Party have initiated open trade policies with the likes of Singapore, setting an example for others to follow. As one of my very alert clients from Timaru mentioned recently, Singapore, New Zealand and Australia could easily become a ‘trade bubble’.
Are we heading into another global depression?
There has been a lot written about the depression that emerged over the 1930s and the time taken for the global economy to emerge from that economic depression.
The short answer is … it is possible, but not probable. I have used that phrase on a number of occasions over the last four weeks.
Another question that comes up periodically is will there be the second leg down for the share market (will the share market crash again?). Again, the answer is … it is possible, but not probable.
I realise sometimes we just want to know the answer for sure, black and white, no vague responses! Unfortunately, the world is not that simple. Indeed, it is quite complex; however, there may be some good news for us.
It is clear that, effective immediately, we are going to see a significant amount of negative economic data emerge every which way we look. You have heard about negative interest rates. What about negative oil prices? Well that just happened (in the US, some oil producers were paying for others to take their oil away!).
Whether it be unemployment rising sharply, economic growth declining and turning into contraction, manufacturing almost stopping, as I have mentioned previously, one thing you can be sure of is that the mainstream media (CNN, World News, CNBC and Channel One) and of course, let’s not forget the internet, will all be leaving nothing to the imagination when it comes to letting you and I know just how really ‘bad’ things are.
At least, that is what they would have us believe. I know I am sounding cynical and repetitive but truly, that is their agenda – let’s face it. You and I have a different agenda – yes?
I have not taken the opportunity to send you lots of information, including charts and graphs, around the sobering economic picture that is emerging. I do not think it serves any purpose just yet (it is too early). Further, I will be reporting, in due course, looking at what it means for us as everyday citizens and investors (not as an economist or internet marketing jockey).
The above chart compares the movement of investment funds during the global financial crisis over 2009 with the current lockdown in 2020.
It is understandable, when we think about it, COVID-19 is having a different impact than the global financial crisis.
Like many, I do not see an early V shaped recovery for the global economy. Nor do I see recession freefalling into global depression.
In the US, in the 1930s, for example, there was an uncoordinated ‘knee jerk’ protectionist government policy response that frankly just did not work. There was limited central bank intervention that allowed the market to simply lie where it fell. Guess what part of the population was hurt the most?
We are now 2020 (not 1930). The mechanisms, tools, processes, systems and communications are different.
As an everyday citizen, you and I know that our life is very different than it was back in the 1930s, due in part to technology advancements that make our life easier.
The internet is a simple example and there are many that you may think of in addition. Right there is a good example of how some people have been able to continue working from home in an online environment. Not that many years ago, the internet did not even exist. Do you see what I mean?
That good news I alluded to briefly before is based around the significant central bank intervention going on around the world right now. We used to read about low interest rates, quantitative easing and deflation as though it only ever existed in far off lands elsewhere – not New Zealand. Well, here we are.
But what about global debt!?
I know that some will worry about the increase in global debt. I do not.
A discussion for another day perhaps, however, the global economy, in my view, despite the Coronavirus, is in the midst of a secular upward swing, because of those advancements that have come about over the last 50 years or so.
To be clear, the recession and subsequent depression of the 1930s was a structural problem.
So too was the global financial crisis through 2007 to 2010.
The Coronavirus is not a structural problem but rather more of a cyclical problem that shows up from time to time in a serious way.
Just as the banking community, since the global financial crisis, has implemented new stronger measures around solvency, hopefully the world will use COVID-19 as a learning experience to be better prepared for another more menacing virus that will likely emerge at some point in the future.
Anyway, interest rates remain low, central banks are providing funding, governments are willing, people generally are adhering to lockdown restrictions, particularly here in New Zealand (good on us all!).
The narrative has now shifted from what I would call ‘COVID-19 damage control’ toward discussions around how do we emerge from this event, get people back to work and economies back on track?
We know that in events like this, there are always winners and losers.
It seems unfair.
It is just the way things are.
Still, the current situation will improve, even though it may take time. Improvement, I believe, is inevitable.
In the meantime, isn’t there just so much to be thankful for?
“There is always something to be thankful for. If you can’t pay your bills, you can be thankful you are not one of your creditors.”