He thinks house prices may fall sharply, sees an opportunity for KiwiBuild to be ramped up, and is concerned about the potential rise of xenophobia. But Arthur Grimes is reasonably upbeat about New Zealand's economic outlook in the face of the COVID-19 pandemic.
Grimes, senior fellow at economic research institute Motu and professor of wellbeing and public policy at Victoria University, says the economic fallout from the pandemic could impact housing in two key ways.
"I think house prices will drop. I think they could drop quite sharply. I haven't seen much evidence of that happening yet, but I think there is potential for house prices to drop very sharply," Grimes says.
Grimes, a long time advocate of improving housing affordability, says lower prices "would be a good thing socially, it would be a very good thing."
Meanwhile the steep economic downturn provides an opportunity to "really ramp up KiwiBuild," the Government's beleaguered housing programme, Grimes suggests.
"KiwiBuild never made much sense when we had fully employed resources but it makes a lot of sense when we don't have fully employed resources. So once we can get the construction industry going again, whether that's level 3 or level 2, I think there's a huge opportunity for KiwiBuild to come into its own," says Grimes.
A former chairman of the Reserve Bank, Grimes believes the COVID-19 related economic hit will be the biggest one since the Great Depression in the 1930s, but is optimistic the downturn won't last as long this time.
"I think the difference between this one and the 30s is I expect this one to be much more short lived. I'm moderately optimistic that we and the world economy will pull out of this much faster than we did out of the Great Depression. But the short-term downward effect is probably at least as large as the initial significance of the Great Depression."
Why is he optimistic it will be short lived?
"I'm optimistic that the antiretrovirals will come through ... or else vaccines, and that may take a year or whatever, but once those are in place I don't see any major impediment to the world economy rebounding sharply at that stage. In the interim we're lucky that we're a commodity producing country. People still want to buy food. We went into this downturn with an extraordinarily strong fiscal debt situation, public debt situation, so we've got a lot of leeway to cushion ourselves through it. So even in a year or two's time, our public debt situation won't be disastrous," says Grimes.
"And so it's not like we'll have to go into a prolonged period of fiscal tightness or anything like that, because our public debt will be at quite a reasonable level compared with our history and compared with other countries."
But as a small, trading nation how important to NZ is what happens in other countries?
"It's very important clearly. Exports are a reasonable proportion of our economy... And I think we have to realise that tourism exports are going to be down the drain for a couple of years, but the rest of our export sector I think will be pretty strong. We're lucky that we have China as our biggest market, they've done very well through this. And we're quite diversified in terms of our exports, they go to different places," Grimes says.
"So we're dependent on the rest of the world but I don't see any reason why the rest of the world won't pick up also within one or two years."
Grimes agrees with Climate Change Commission Chairman Rod Carr that the stimulus measures the Government adopts should include a climate change lens.
"So I don't think we can stop our path towards net zero carbon emissions, that should continue. And that should continue on our existing big emitters and that includes agriculture," says Grimes.
He acknowledges migration, a key economic driver over the past decade, is gone in the short-term. But Grimes says medium to long-term migration will be a choice for NZ because there will be as many, if not more, people wanting to move to NZ than in the past. He is, however, concerned about potential for rising xenophobia.
"One of my concerns at a social level is growing xenophobia, - with people suddenly saying 'do we want these tourists, do we want these migrants etc.' It's quite a xenophobic attitude in my view. I've always been very partial to having a diverse group of tourists and a diverse group of migrants coming to New Zealand. I think it's great to stop New Zealand being so dull as it used to be," Grimes says.
"My main fear on that front is we will become more xenophobic. That will be very counterproductive I think for New Zealand. If we don't go down that route and we stay nice and open, I think we've got great prospects going forward. I don't see major issues with how most of our exports are structured."
Beyond NZ Grimes is concerned about anti-globalisation, and xenophobia, as countries strive to recover from COVID-19.
"Yes that is a danger if the rest of the world leverages that feeling. If you think about the Great Depression, one of the big reasons the Great Depression lasted so long was because of the xenophobia that happened at the time in terms of people putting in place trade barriers etc across many countries in the world. So I just hope that doesn't happen again. I hope that we've learnt from history in that way."
"But as you say many of the world leaders are pretty xenophobic these days and that is a concern. And for me that would be the major concern for the world economy, that countries become insular and that we drop the globalisation agenda. The globalisation agenda has been an extraordinary benefit to billions of people throughout the world. And to go back on that agenda I think would be extremely counter productive especially for the poor, who have benefited hugely from it," says Grimes.
*This is the third interview in a series looking at reactions to and potential policy responses to the coronavirus pandemic and evolving economic downturn. The first interview, with staunch critic of the economic mainstream Steve Keen, is here. The second interview, with director at economic advisory firm Landfall Strategy Group David Skilling, is here.