sign uplog in
Want to go ad-free? Find out how, here.

Brian Fallow looks at the dire economic prognosis thanks to COVID-19, and probes the key issues and options for policy makers as they look ahead to a time when the virus is under control

Brian Fallow looks at the dire economic prognosis thanks to COVID-19, and probes the key issues and options for policy makers as they look ahead to a time when the virus is under control

By Brian Fallow*

Weary of lockdown already, people want to know when things will get back to normal. In many respects the answer is never.

Right now the economy resembles a car crash victim in intensive care.

At some point it will move on to a lengthy process of recovery and rehabilitation. But to assume that will be a return to business as usual is to gravely underestimate the magnitude of this shock.

From a public policy standpoint the immediate primary objective is, of course, to save lives.

The secondary objective -- as far as is possible consistent with that primary objective -- is to save jobs by supporting the businesses that provide them.

The longer it takes to get the epidemic under control the more difficult and expensive that will be, but in the mean time money is no object.

The biggest-ticket item in the fiscal response so far is the wage subsidy which the Government tells is supporting over 1 million jobs (more than a third of total employment) at a cost approaching $7 billion. And it only covers the June quarter.

The next stage to expect is to transition, gradually and gingerly, to a recovery period when the emphasis is on stimulus rather than survival.

By then the output gap will have become a yawing chasm, evident in joblessness, shuttered shops and restaurants, empty hotel rooms, trucks sitting idle behind chain-link fences and so on.

Fiscal policy will have to do the heavy lifting. Monetary policy is now essentially defensive, with the Reserve Bank using quantitative easing to try to keep longer-term interest rates low and the Government funded as its operating deficit balloons.

So how next month’s Budget designs the fiscal stimulus is key.

Infrastructure spending is all well and good – the most bang for buck – but it is subject to lags and bottlenecks.

There will also need to be measures to boost private consumption, as soon as it is safe for people to sally forth and spend.

Expect to hear more about the “three Ts” supposed to condition fiscal stimulus in challenging times: timely, targeted and temporary.

The Government should not be too hung up on the “temporary”. Reflecting on the international response to the global financial crisis recession Michael Cullen said that the world had got very Keynesian very fast, but not for very long. The recovery was accordingly slow.

The one ahead will be a harder slog.

It will require adjusting to a profound and synchronous global recession.  

Services exports like international tourism and the export education trade are obvious casualties when borders are closed but even when those restrictions are eased, and who knows how far off that is, tourism is a luxury trade facing a world experiencing massive wealth destruction.

As for the trade in goods, there was already an ebb tide running on globalisation before the coronavirus erupted, with protectionism on the rise driven by US policy.

Even if that does not intensify, as policymakers recall the lessons of the 1930s, we are likely to see companies look for more resilience in supply chains.

 “What do we need to make in New Zealand that we didn’t before?”  Finance Minister Grant Robertson has rhetorically asked.

And on the other side of the trade accounts, should New Zealand get more serious about adding value to the output of its primary sector, and about weightless exports?

Turning to the domestic economy, how and where we work is liable to change.

Some of those now working from home may find they like it and question the need, when restrictions are lifted, to climb in their cars and battle rush-hour traffic to get to an office building in order to perform tasks which in the age of email, Skype and Zoom they could do from home. Others will not.

The trend towards on-line shopping is likely to strengthen.

Will the gig economy become more prevalent, or will firms find that outsourcing is a risky strategy if your contractors go out of business during the period when you don’t need them?

The supply side of the labour market is liable to be boosted by fewer Kiwis leaving for greener pastures abroad, while more expatriates return.

That would boost demand in an already under supplied housing market.

But on the other hand one of the key factors underpinning the relentless rise in house prices and household debt levels relative to incomes in recent years has been an exceptionally high employment rate.

Without that support where do house prices go, especially when investors learn the hard way that leverage is a two-edged sword, amplifying capital gains in a rising market, devouring equity in a falling one?

There is an obvious financial stability risk arising from the housing market as unemployment rises and incomes fall. Will the buffers provided by loan-to-value ratio curbs and the increase in bank capital built up ahead of the now-delayed regulatory tightening be enough to handle that?

Meanwhile as the Crown’s balance sheet (including the Reserve Bank’s) takes the strain of an economy in distress, difficult issues of intergenerational equity arise.

There being no free lunch, Parliament will have to wrestle with the distributional consequences of different possible combinations of tax, debt and monetisation.

Pre-pandemic the fiscal implications of an ageing population argued for adjusting the entitlement parameters for New Zealand Superannuation, whether age of eligibility, universality or indexation.

That was always going to be a hard sell politically. In a post-pandemic world when unemployment is high and private retirement savings have taken a hammering, it will be harder still.

Finally in this catalogue of uncertainty is what the coronavirus crisis and its economic fallout might mean for the great issue of our day and age, climate change.

Will it retard moves to transition to a zero-carbon economy and adapt to the already inevitable consequences of mankind’s collective failure to take the issue seriously enough so far?

Or will investment in decarbonisation be seized upon as a welcome engine of demand in an economy where demand is, so to speak, in short supply?

Let’s hope it is the latter, because if the pandemic is anything it is nature reminding us that its laws are not the kind you can break and we disregard them at our peril.

*Brian Fallow is a former long serving economics editor at The NZ Herald.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.



What are people actually getting from the government. My daughter was a private contractor and got a one off payment of 7k, her job won't restart till June. I have heard that other workers are getting the dole equivalent. How many are on nothing?

I think it would be a good time to look at some of the costs, duopoly in food supermarkets, building materials, return councils to core services, reduce gas taxes and costs in general, I think we are seriously uncompetitive on a global stage without a natural climatic advantage.

Is this the end of deficits?

disclosure; I hate what councils have done to our regional economies, i would burn them all down.

"I think it would be a good time to look at some of the costs, duopoly in food supermarkets, building materials, return councils to core services, reduce gas taxes and costs in general".

Absolutely. The govt also needs a tax incentive driven scheme to bring back manufacturing and service jobs to the country. Put up some trade barriers if needed but we can't be in a position where all cars are produced overseas. Try and find a tool in Mitre10 produced here in NZ.

But as importantly be a little flexible on the minimum wage. If we can address the issues in the food and housing supply chains this country doesn't need to be so ridiculously expensive.

I would never buy a car produced in New Zealand. Heard of "competitive advantage"?

Cars are mainly a fashion item... we could do something like the VW Beatle of WW2 Germany

Or hilux pre 2004. Not fast or flash but bulletproof

Resurrect the Trekka

"Try and find a tool in Mitre10 produced here in NZ." Challenge accepted. Drills from Patience and Nicholson, in a lot of specialist tooling (router, moulder, lathe, shaper etc) that never appear in consumer-end retail. There are actually a lot of back-street manufacturers, metal-bashers, foundries etc which plug away quietly, well under the radar, but who are well-respected in their industries.

Agree - modern councils could be the new definition of a self licking ice cream cone.

Planners aside , they are the last stop on the employment train for the unemployable elsewhere

A one off windfall tax on supermarkets would be a good start. They must've seen an increase in turnover and profits following the forced closure of butchers / grocers etc.

What do you mean make even more than the $1m per month profit per large format store than they already do ?
You would have thought a Labour Greens government would have done something about the duopoly that exists in this business and the extortionate cost of basic food items

I would love Aldi to come to NZ and start up.
This is a great chance to come in and get good deals on land/leases and give kiwis a great deal on food amd more money in back pocket.
In Australia they have managed to bring price of food down approx 30 percent.
I would pick a similar result here.

No, no more foreign corporations, better local butchers, greengrocers, farmers markets etc, these big corporations just screw growers and producers into the ground, from them you only take the price into consideration, and take little notice of true value. We would be far better to become more aware of value and then maybe we would also stop wasting so bloody much.


We need greater competition is important sectors like food retailing , building materials and so on

We cannot have public servants in Auckland council earning salaries of over $200k, it just insane .

I dont know how anyone in the public service other than Adminsitrative Heads of Ministries, Reserve Bank economists , High Court Judges , etc, who could justifiy such a salary.

A large number of average abilty public servants in Wellington earn $130-$160k and plus a year . For 5-6 hour days . It’s a complete joke and needs rectifying


Mr Fallow really is good. Although I think he overestimates infrastructure work as a means to recovery.
I still see a major uplift in government house building as being better. And the government should finally invest in prefab plants. We should aim to source all construction products locally, with a focus on NZ timber. Get into CLT in a big way.

A friend has a CLT house and he loves it. Was quick to build too.

As long as there is some forward planning. Not all in Auckland and not over our best horticultural and agricultural land. House building would provide a short term boost but food production is our long term wealth - and not just financially, a country that can feed itself has a lot more autonomy.

I share your sentiment with building in the Auckland area. That rich soil is lost forever.

Ah, no. The red zone in Christchurch used to be market gardens (riverside silts, nice rich soil, with water table not far down). Then it was suburbs. Now post earthquakes it's park-like. Could so easily be market gardens again. Human occupation is a fleeting thing, sometimes....

Park like isnt farm like. So whos going to remove all the remnants of the suburbs and turn it back to market gardens or more importantly who can afford to?

He spins the image of Auckland CBD with no foreign students, no retail because of online buying and no office workers because they are working from home and using zoom for conferences. That will be an Auckland with a dead centre but surrounded by happy communities in suburbia. Sounds great. Give it a few years and Auckland CBD will become a ghost town visited by tourists keen to see the dated ugly architecture.
Economic future? Its a worry but too hard to predict.


I need some light bulbs for my tractor, both local auto electrical shops closed so went online to Repco. That's $150 not being spent local and I now have an online account with Repco.
After this money is going to be so tight for so many families, yet we have companies in NZ using offshore tax havens to avoid contributing in NZ. I'd start a fire.


Not to mention one of our biggest cereal producers not paying any tax because they're a charity.

So charitable that they sponsor the All Blacks.

For sure. In my next life, I'm setting up my own church.

Me too . And anoint myself a Bishop or Pope

Well reasoned article.
New Zealand has a big advantage to many - power.
Do we need to subsidise an aluminum plant or use the spare power capacity to rebuild/start other industry?
It fits in with any Climate Change imperative we may have but may swamp the grid with electricity and drive down the value of the current crop of providers.
We are all going to lose something in this reconstruction - nationally important utilities can't be excluded.

Perhaps we'd be better off putting some data centres in Southland to use some of that power coming from Manapouri. Cold temperatures are ideal for a data centre, and the electricity more sustainable that that powering data centres in Australia. Companies may also be finding themselves vulnerable now to FX based sticker shock for some online subscriptions.

Did we ever get that second undersea cable? IF not, data centres would be risky here.

Re "Or will investment in decarbonisation be seized upon as a welcome engine of demand in an economy where demand is, so to speak, in short supply?

Let’s hope it is the latter, because if the pandemic is anything it is nature reminding us that its laws are not the kind you can break and we disregard them at our peril."
NZ needs to reform its energy industry by investing in 'battery of nation' initiatives like Australia. NZ has a huge advantage in its geography to use pumped hydro to eliminate the 'dry year' risk and thereby lower electricity prices.


Brian is a smart enough cookie, and this is a reasonable series of queries.

But he misses the Limits to Growth; the 'down the other side of the gaussian' issue.

Local is indeed the future. Back to making real stuff locally, for local consumption. All that stuff we discarded arrogantly post Roger Douglas, despite warnings like 1987 and 2008. The problem is that the margins - due to a generation expecting Chinese wages to be reflected in their cheap flat-screens - don't allow for NZ wages, or for lower production-runs. So we are all going to buy 'less' at the higher-wage level. Welcome to the inevitable future.

Brian may not realise (I tried to explain it to him once, a decade ago) but this was always going to play out, recession-wise. The only question was what trigger? And the bit I tried to explain was EROEI - Energy Return on Energy Invested. This is why we cannot replace our existing 'economy' with renewable energy. So we need to construct another one, one for the long haul. That, some of us have been demonstrating for some time....

Those who (with arrogance, when you get down to it) decided that humankind was somehow above nature, are no doubt going to be sidelined, silenced, or maybe they'll just look varying degrees of stupid. And the teaching of economics has to stand up and say 'mea culpa'. And the believing media. I listened to an economics-trained author on RNZ last night (Kinley Salmon, 9.0 something), trotting out all the usual blind stuff about 'productivity' (which is a matter of EROEI, physics-wise, belying the nonsense idea that we are anything at all vis-a-vis fossil energy - human labour is somewhere between 0.7 and 0.5 % of work-done globally; mere noise) and missing the point in spades. Not only had his training made him miss the point, RNZ clearly couldn't differentiate either, in selecting it.

My fear is that we never have the discussion honestly, that we take our assumptions all the way over the cliff...


I don't think the masses are going to listen to tales of resource depletion until they see it happening.
And in 2020 a barrel of oil selling for roughly the equivalent of an hour's wages is not what the peak oil people were saying 10 years ago.

Oil peaking is a geological fact. The price of oil is a combination of supply and demand. Peak oilers didn't have a crystal ball to predict global pandemics, trade wars, financial crises, or the shale cracking "revolution", none of which make geology go away! Shale is actually a symptom of peak oil, along with being an example of a whole industry that never made a dollar. p.s. what happened to economists predictions over the last 20 years? "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today".

Peak oil is gone from our lifetimes and several generations into the future because of technological advances leading to fracking, shale oil, and obviously the battery electric cars that are starting to pour through and take over. Combustion vehicles will be a thing of the past within our lifetimes. Oil will merely be fore the plastics industries and aviation.

Beanie - some of don't stop learning. A decade ago, I assumed Goldman Sachs knew about things, and assumed their projection of $200/barrel oil was reasonable.

Since then I have learnt about what economists are taught, and worked out why GS were wrong.

The problem is that work is needed to be done, in the future, to pay back 'debt' (which is how all money originates). So it there is less future work do-able, the ability to repay deceases. Apply that to oil Co's Capex; they go to the bank with an exploration or development proposal. The proposal requires x payback. The future energy return isn't there, so the bank turns it down. So we will NEVER see $200/barrel oil. It cannot be physically underwritten. This is manifest in fracking never having turned a buck - in fact I predict that Trump will nationally 'save' fracking soon; they need the energy but they cannot afford it.

The question then becomes how much debt can be accrued before disbelief reaches tipping-point?

Yes, it's obvious now that Roger Douglas didn't factor in Chinese biological warfare in his globalist economics manifesto.

The Level 4 lock down needs to run for at least 6 weeks total followed by a Level 3 for another 6 weeks.
All citizens should be required to wear a face mask outside of their own homes until a vaccine has been found.
There should be zero commercial passenger flights into or out of NZ until a vaccine has become available.
Anyone arriving back in on repatriation flights over next 6 weeks should go in to military style quarantine.
We cannot afford to let Covid back in to NZ once we have eliminated it - just not worth risking a second wave
In the meantime a universal wage until the economy is back on its feet.
We need to postpone the election until Sept 2021 and have a 4 year term thereafter. There is no need for a standard style government for the next 12 months.
Short term pain for long term gain.

..... and once its eliminated?

BAU, ignite again the FIRE economy, sell more lands.. to you?, CCP is standingby ready to inject their shrinking money value via our local blue bank.. but must be quick!

But I do believe there is a phalanx of real estate agents right now, barely maintaining their 2 metre separation, champing at the bit outside the REINZ Auckland office in Parnell; they can hardly contain themselves and are apparently snorting and stamping their feet and shaping to explode into action. REINZ officials are at this moment having difficulty holding them in check and as some are creeping over the starting line there's speculation the officials will have to call in the police to maintain some semblance of order.

"Short term pain for long term gain"
If you lockdown this country for 6 weeks, the long-term gain will be so far off in the future that by the time its discounted it'll be negative NPV!

Every day that passes where a business cannot operate and a consumer cannot buy, means the likelihood of it folding and its knock-on effect are exponential.

The only winners here for you bigblue would be the pharmaceutical companies....... in my opinion thats what they want. So are you suggesting this military style quarantine remains forever covering all flus??? I dont see the COVID 19 death stats equalling the common cold which occur every winter. So in your opinion we send the world ecocomicaly into turmoil. Perhaps you need to run for Parliament too and join the rest of these idiots.

Ever heard of logistics? There are not enough masks to go around, they need to be saved for those who need them the most.

Well, we could always supplement our strung-out, and occasionally fragile power grid and generators, with a nice reliable nuclear plant close to one of the major demand areas......just like that Paragon of Greenery - France.....less concrete than the thousands of windmills-equivalent, and instant zero-carbon to tick That box.

Aren't we a wee tad more vulnerable to earthquakes than France?

I vote the waste gets buried at waymads' house.

May be? the world need to vote for change, unanimously band together to dispose the waste into outer space... towards the sun? or different galaxy. After all, it's our nature to make decision that just 'slightly to surpass our lifetime expectation'.

Have you though it through from an energy POV?

Won't happen - we can't even maintain the aging collection of infrastructure we currently have

Molten salt nuclear, not heavy water nuclear though. Molten salt reactors have negligible plutonium byproducts, the waste is 1/10 as radioactive, and they don't have issues with meltdowns. The only reason we have all these heavy water reactors around the world is because they useful for enriching uranium for nuclear weapons. Research into molten salt reactors was abandoned for 60 years because governments wanted bombs, not safe, much cleaner nuclear power.

Our Government isn't a bottomless pit of money, so when Govt borrowing rises to 40% GDP does it get a credit downgrade?

In 5 years where are interest rates....?

It is a bottomless pit of money actually. Reserve bank can control yields whenever it wants. It just buys up all the debt and the govt owes itself. Only a problem if spending outstrips productive capacity. Right now there is zero risk of an inflationary outbreak.

Exactly. Even if inflation did break out and the dollar fell that would spread the pain evenly across society. Monetary stimulus including the Reserve Bank buying government debt should not be feared now. The bigger fear is the massive loss of economic activity...

This is where your socialist optimism fails the test, Brendan.

Economic activity matters not a damn.

Brian has it - if we stuff with nature we are dead. This has been a wee wake-up call (if we are smart enough to realise it - some are still using 'recovery' rhetoric). That overrides 'the economy' - just as ecological maintainability outweighed 'child poverty'.

We are no more than a species, and we are both overshot and shitting in our own nest (with a current respite, granted). All else is arrogance - socialist optimism most emphatically included. This is where Labour will fail to address what is really needed.

I wish you could tell my local New World store there is no inflation, as they have increased prices on a lot of things by 50 to 100%. Wait for their quarterly earnings. Good time to buy their stock?

Foodstuffs is a cooperative of owner-operated businesses. No stock :(

Do we still not need 3 party holder of Govt Bonds that have confidence in the nations ability to produce and trade they-by holding the value of currency?

What a shame we don't have the uber organizers and leaders of old such as the late Sir Keith Park. Ok Jacinda could still be his communicator. If we'd had the likes of Sir Keith Park running Fletchers for the past 20 years it would have been a veritable dynamo.

Oh we do have them. How do you think the Pike re-entry was planned and executed? Ex-military types with experience in war-zones at the top of the tree.

We need to grab these guys and have youngsters welded to their hip(s) to relearn the lost art of how to plan effectively.

Could always give some relief to the tobacco smokers of NZ. Over 50% of them have zero price elasticity. That's between 1.5 and 2 billion dollars per year being sucked away from NZs poorest population. Maori Pacific Islanders, beneficiaries, mentally ill, and I suspect many of the parents of children in poverty, are all over represented in tobacco smoking stats.

You're right fat pat.
For all their righteousness regarding the mentally ill, Labour went ahead with the last cigarette tax hike that put a packet of 25 up to near $40. (I buy the very occasional packet for a friend's son who is under the mental health.)
I suppose with Covid, the recent mental health allocation of $190 million put aside for use over the next 5 years, will be siphoned off to stimulate those companies owned by NZ's 'Fortune 500'.
Right-wing Herald Columnist Matthew Hooten would certainly applaud this going by his last Friday's Herald column advocating the 'generational cleansing' of eighty-year-olds by just letting the virus take its course. ( I suppose the epithet "fascist" would better describe him now he has disclosed his true feelings.) One wonders if he holds the view that liquidating the mentally ill would also be a good idea, as it would save on benefit expenditure.
Until the pharmaceutical intelligentsia at the world's universities get their backsides into gear and devise a suitable tranquilizer for the mentally ill, the mentally ill will still find cigarettes the best means of calming the nerves.
So Labour has just delivered another blow to the guts of the mentally ill, while, at the same time, coincidentally, it has absolved the fathers of the children of solo parents from taking any pecuniary responsibility for them. Thus, one could say that the extra cigarette tax will go straight towards the bringing up of the fatherless children of irresponsible fathers.
The world works in mysterious ways.

Yes when I was in Auckland a few years ago I passed a mental health facility in Papatoetoe and saw half a dozen people sitting outside smoking. I saw people scavenging cigarette buts from the gutter. A sad inditement of NZ society. It’s a known fact, reported in the scientific and medical literature that the mentally ill smote at higher rates than the general population.

You’re right that Labour has failed Kiwis on this issue. The ministry of health commissioned a 250 thousand dollar report from Ernst and Young in 2018 showing that more than half of the smoking population wouldn’t reduce their tobacco consumption in response to price rises.

I live in Germany right now where a 40 g packet of tobacco costs 4.55 euros, equivalent to $8.30 NZD. Compare that to NZ where 30 g costs over $50 NZD. The Germans are generally smart people, and they think a lot about the consequences of their policy decisions. There's almost certainly a good reason why tobacco is relatively inexpensive in Germany. It's worth noting that the smoking rates among German youth are declining because of generational attitudes towards health.

I think New Zealand is eviscerating poor people. The trouble is that sector of society can't advocate for themselves.

We already shifted the essentials to white collar crimes, politicians, bureaucrats,.. check as how many of our rubbish collectors or nurses actually on the million dollar mortgages? shuffle to the fronts to die all those soldiers, the rest.. hey! I'm essentials, everything is controlled remotely via zoom.. (except when comms completely cut off), I'm sure they will be on autopilot. C'mon seriously, in AKL area? 1million palace=6bed,4bath,2garage - baby sit by two elderly. Now for the same combine rates value; I thought? much handy to split that into two: two families, 500k, two houses=3bed,2bath,1garage. Shuush money talk in AKL.

Good points. We need to address the NZ super issue. We cant have people earning over $100,000 getting Super as well. It needs to be income tested in some form. I strongly agree with the last point. Nature has reminded us who really is boss here on earth - Donald looks pretty lost fighting a microscopic organism - we have been warned. This is a sudden hit and motivates everyone as death and destruction is on the doorstep - destroying our natural capital is a slow death by a 1000 cuts - we need to listen to science and learn to work with and respect what nature can do or the outcome will be far worse than what we are seeing now.

@Jack Try telling Winston Peters he cant have the Super with his Salary of over $200k per annum

Far be it from me to rain on the parade here, but the die is already cast.

Globalisation is on the ebb.
Our world is two years into a Trade War.
Wars are about dominance & destruction.

This one went hot with the emergence of scapegoat Covert 19.
ALL blame is apportioned to a flu which has fatality rates about the same as, well, most every other flu.

Few grasp this is our Somme moment.

The financial house of cards together with all we've known & our futures, has already self destructed.
Futile rescue bailouts & plunder are playing out behind the scenes.
Nation states will collapse under the relentless debt burden barrages.
Meanwhile, we're 'safe' under house arrest, waiting for the controlled demolition dust to settle.
It'll be a while yet.

You're not hearing about it as there are no column inches spare in the repeater media anywhere anymore!

Best I can tell, the eye of this storm is still ways ahead.
All plans for afterwards are premature as no model can predict the landscape we will emerge into.

Friends refer to me as a conspiracy theorist, I'd prefer critical thinker.
Just my 10 cents worth.

The possibility of a major war (not just a little infraction in the Middle-East) breaking out in the next 2 years, is even higher. The nationalisation trends we've seen over last 2-3 years is increasing with nations looking to preserve what assets they have for their own citizens (pharmaceuticals India, rice in SEA etc..).
A major contraction, say even a depression, will quickly readjust peoples expectations. Deflation of assets and commodities is just around the corner... deflated demand, risk-adverse banks, nation-centric trade.

Every politicians & RBNZ members in NZ have the collective sub-conscious to maintain the steady & upward trajectory of FIRE economy, private & commercial Landlords & Banks are the current obvious recipient of those wages subsidy/business relief handout. The Essential services of Landlords & Banks for providing rentals+home loan market to all NZers, will be preserved as the main future of NZ economic prospects.
But just a reminder for our readers as what FIRE economy is all about: (Interest to interview her?)