Mike's Minute: Is Covid's economic carnage still to come?

Author
Mike Hosking,
Publish Date
Fri, 19 Feb 2021, 10:46AM

Mike's Minute: Is Covid's economic carnage still to come?

Author
Mike Hosking,
Publish Date
Fri, 19 Feb 2021, 10:46AM

If Westpac are right, the economic carnage that so many have been predicting is on its way.

As much as we have enjoyed the so-called bounce-back, it was never real, and it was never going to last. The economy got crushed in level four. The fall was gargantuan, but the upside is once we got out, we went nuts, and certain businesses reaped huge rewards.

If you sold cushions, paint, cars, art, or electronics you were quids in. The company results that have flowed through all tell the story.

But an economy is a complex thing, and as much as we enjoyed watching the dairy prices rise, and the farmers do well, you can't hide from the fact that this country does a couple of major things: farming and tourism.

The latter got smashed. No matter how many times we went to the Bay of Islands, the Bay of Plenty, or Central Otago. We never were going to fill the Chinese, American, and Australian gap. Either in numbers, or in dollars.

That is why reality is about to hit.

The clues were there last month. January was far from flash.

The last GDP number we got was for the third quarter of last year. It was stonking, it was peak shopping, and we went crazy. The fourth quarter will be interesting, that's October, November and December. It's out next month and should have some life left in it. But it will be nothing like Q3.

This is where Westpac come in. January, February and March, this year's first quarter is trouble. It's the lost summer of tourism. They then claim April, May, and June this year will be bad as well.

We will go backwards for two quarters, a recession. We had a recession last year, but that was obvious as the country was closed for a good chunk of it.

It was a mess. But is it still a mess? Do we think it's a mess now? Are we in the middle of a mess? What happened to all the good news headlines and we are the envy of the world?

The reality is this is the result of your health only approach. If health is all you're interested in, you pay the price elsewhere. We will be paying the price in the economy, again.

A double dip recession is a failure. It’s a failure of balance. Good governance is about balance, we have failed to juggle more than one ball.

Remember part of what has made the so-called economic damage palatable is debt. The government has filled the gap by borrowing, but that money needs paying back.

It's normally paid back by growth. In a recession there is no growth, there is less than no growth, so you borrow again. You see the pattern.

Forecasts, of course, have been wrong before. Wildly wrong. Given what these latest ones are saying, the tragedy, and the only hope is that they're wrong again, otherwise we are in a world of pain.