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

The COVID-19 path is turning a corner but there are still huge challenges ahead. 2021 will be another year where lifestyles and the economy will be dominated by COVID-19

The COVID-19 path is turning a corner but there are still huge challenges ahead. 2021 will be another year where lifestyles and the economy will be dominated by COVID-19

This is the nineteenth time I have written about COVID-19 since early February 2020 but I have not written about it since September. In those early months, my key perspective was that we were under-estimating the impact that COVID-19 would have, both here in New Zealand and globally, and that some of our responses were too slow. I also saw a need, in an environment when people were looking for certainties, to articulate the uncertainties.

For a while, things looked real wobbly as the Ministry of Health was poorly organised and there was confusion until late March as to whether New Zealand would aim for elimination or simply flattening of the curve. The Level-4 lockdown came only just in time. The full story of the debates within the Ministry of Health, and exactly how the Prime Minister came to make the subsequent decision for elimination, has yet to be told. It could well have gone the other way.

By September, the key issue in NZ seemed to be underestimating the risks associated with an increasing proportion of returnees who would be COVID-19 positive. So I wrote about that. Thereafter, I saw no great need to say much more. It was just a case of waiting for the Northern Hemisphere winter to play out, with inevitable impact. And that is where we are at right now.

The path ahead is now about to turn another corner. In Western countries, the death rate should peak in coming weeks and then decline as a response to a combination of rising vaccination rate plus some ongoing lifestyle restrictions.

Accordingly, in Western countries and the more developed Asian countries there should be a markedly increasing but far from complete level of population immunity prior to mid-year. The rest of the world will still be vulnerable.

Ironically, while much of the Western world will be in a recovery phase by mid-year after a very difficult first quarter, here in New Zealand there will be less change. The key COVID-19 issue in New Zealand will still be the risk of community transmission from international returnees.

In particular the societal consequences of any escape of the disease into the community, with population immunity in New Zealand likely to be six months behind America and Europe, will remain profound. The Victorian experience in Australia should not be forgotten.

One key issue that has yet to be determined is the length of protection from the various vaccines. My current bet is that protection will be dropping significantly within a year and that annual revaccination will become the norm if population immunity is to be maintained. With luck it will be two years or perhaps even five years before a booster injection is required, but only time will tell.

One of my friends who was sick from COVID-19 way back in March is still producing high levels of antibodies and is donating plasma every few weeks. That is a promising indication that vaccines can also be long-lasting.

Although the virus has long been eliminated from his system, unfortunately my friend still has elements of systemic malaise as well as antibody production. That malaise is a reminder that the effects of COVID-19 can be far from trivial, even for those who do recover.

There is lots of confusion about the relative merits of different vaccines. From the outset, I have had particular faith in the Moderna and Pfizer-BioNTech vaccines based on formulation of messenger RNA (mRNA). As soon as I saw the initial Moderna results back in May, with strong antibody responses in humans combined with no serious health effects, followed by data on disease efficacy in monkeys, then it seemed to me that the key elements of the big picture were in place.

Using mRNA in this way is a remarkable new technology. It presents as a pathway to the future, not only for COVID-19 but also for all the other viral diseases. 

Other vaccines using more traditional technologies will remain important for COVID-19. That includes the Oxford-AstraZenica vaccine, the Russian Sputnik vaccine and the somewhat maligned CoronaVac from Chinese Sinovac. Anything over 50% efficacy can play a useful role in the global halt of the disease, but it is the mRNA technology that is the pathway to the long-term future. The Moderna vaccine does seem to be one step ahead of Pfizer-BioNTech in that regard, given the less stringent freezing requirements.

If there is any justice, then the researchers behind Moderna and the Pfizer-BioNTech vaccines will be Nobel Prize winners for medicine. More important, they will be hailed as global heroes for finding the new path to vaccine development.

The debate here in New Zealand has recently been focused by Minister Hipkins’ statement that although New Zealand visitors may be required in future to be vaccinated, the same requirement for returning New Zealanders might breach the Bill of Rights. The issue goes to the core of returnee rights relative to the rights of local citizens to be kept safe.    

At some stage the Government may also need to reconsider the charging system for quarantine. Currently, any New Zealander who was overseas at 12.01am on 11 August 2020 does not have to pay anything unless their return visit is short-term. The time may also come when those who have been vaccinated require a less stringent quarantine than those who have not.

My reckoning is that the broader New Zealand economy will function reasonably well this year as long as COVID-19 can be held at the border. The exceptions will be those sectors that are dependent on international tourists and international students. The house construction industry will continue to boom with Kiwi returnees plus ‘fear of missing out’ creating ongoing demand, but house building will continue to be limited by land availability. 

A significant driver for New Zealand’s economic growth will continue to be spillover from China’s growth. I expect China to become even more important as an export destination unless New Zealand gets caught in geopolitics. If that should happen, then all bets are off and a substantial recession would be inevitable.

There are only two Western countries that rely heavily on China as export markets. Those countries are Australia and New Zealand. It is a natural outcome of geography and resource endowments.

Australia is somewhat protected in that China has no alternative to Australian iron-ore. New Zealand also has some protection in that China has no alternative sources for whole-milk powder. However, we would not want to test that shield.

The mainstream economics view is that inflation is benign and likely to remain so, but that is not quite how I see it. Economists rely very much on rear-vision mirrors.

I have done my share of talking around in recent weeks and I have heard plenty of evidence from people in the trades who are increasing their hourly charge rates. Minimum wages also go up by more than five percent at the end of March. Right now, it is only the value of the New Zealand dollar as measured by the high trade-weighted index (TWI) that is keeping the lid on overall prices.

A big question for 2021 is where will the sustainable growth come from? The monetary pump cannot go on forever. The long-term economics look challenging as New Zealand tries to deal with fundamental inequality, lack of fairness and environmental constraints.

As for the Olympics, I expect that they will be cancelled. The alternative will be an Olympics without spectators and with athletes having to quarantine on return. That should remind us that it is going to be another year dominated by COVID-19 and its consequences.


*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. . He can be contacted at kbwoodford@gmail.com.

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.

72 Comments

Astute commentary.
The impact of CV19 on world economy will be lasting for 2-3 years minimum.
The true economic cost in credit crunch terms if approaching, in terms of defaults and inflation.
NZ in a bit of a time warp for now.
Seems unlikely EU and USA will get half vaccinated by end of July to me.
That is 60% of world GDP that will be hindered.
No matter how much we send to China, as a trading nation, inflation will hit NZ hard.
What will RBNZ do when inflation is 5% and GDP is 2% and wages are 2-3%?
Raise rates? I do not think so, so real living standards for many will fall.

Up
0

Inflation is mandated by law to be kept within a certain range. In this scenario the RBNZ must raise rates.

Up
0

We are setting ourselves up for a fall if we do not find more productive outlets for our cheap credit other than driving up property prices; we are one external shock away from vapourising our asset base but still being on the hook for all the debt to overseas-owned banks. Given our consumer goods are already hugely expensive compared to the same goods being sold by the same chains in Australia, even the slightest hint of inflation will send prices skyrocketing far quicker than wages can keep up - and that's before the same ripple-effect radiates into housing etc. 50% of gross household income to service a mortgage on an asset going backwards sounds preposterous now, but no less preposterous than houses at 11x household incomes and climbing.

Up
0

What is taking the Ministry of health so long to approve the Moderna and Pfizer vaccines? Surely a bit of overtime is in order to speed things along.

Up
0

Probably analyzing the adverse affects from overseas to date -Norway is a small Northern European country and only about 25,000 people have been vaccinated with Pfizer vaccines. Twenty-three deaths are a large number. But surprisingly, mainstream English-language media did not report the incident immediately, as if they had already reached a consensus. Major US and UK media were obviously downplaying their deaths.

Up
0

news media v concerned not to appear anti-vaccine

Up
0
Up
0

Also there is scarce news on whether or not any of the vaccines in use, decrease the transmission from one to another? Why is that? It is a critical aspect of the equation.

Up
0

I think the real question is even if they get approved, are we actually going to get our hands on any ? New Zealand is going to be seen as a very low priority since we (currently) have no community case transmission. Also how effective is it ? probably not fantastic by the time you take out at least 10% of the cases where it doesnt work and then a huge chunk of the population, including myself who says no way I'm taking it. New strains now popping up all over the place. If I had to make a prediction I would say we are still in deep donkey doo with this virus and it could still go either way. The vaccine is giving us potentially false hope and the boarder restrictions need to be tighter than ever.

Up
0

I foresee substantial price rises across a range of imports

Supply chain strain has been evident for a while now and the effects are making their way down now.

Our Chinese suppliers have put up prices ~8-20% in the last three months. This in addition to sea freight costs now 3x typical rates means substantial cost that will be passed on to customers.

Up
0

What are you importing?

Up
0

Home appliances among other things.

Steel prices and subsequent componentry keep rising.

Up
0

Price rises & increasing pressure on disposal income ... leading to LESS demand

A recipe for more stimulus

Up
0

There are quite a number of reported mRNA-vaccine related death and strong negative reaction in the EU.

I wondered why the CEO Pfizer-BioNTech sold lots of his stocks after the announcement of its vaccine.

Trust only the Chinese vaccine.

Up
0

Why only trust the Chinese vaccine? Where's the evidence for this claim? It only had 50% prevention in Brazil.

Up
0

Hey Interest, can we add a "report CCP propaganda" button into the comments section?

Up
0

Doesn't propaganda have a sliver of subtlety? This is more like infatuation - ref Beibermania. It is welcome to discover beliefs that differ to mine.

Up
0

Great article.
I am bearish on inflation but Keith makes some good points as do commenters. It's always good to question your own assumptions and beliefs.
Perhaps I am coming to the view that inflationary pressures might be moderate - neither low, or high. I think there are contradictory pressures pulling in both directions.

Up
0

The only inflation that truly matters at the moment is rental cost inflation. The CPI inflation index is a crock in light of the fact that;

... families were spending anywhere between 60 to 80 per cent of their household income on rent- forcing many out of the private rental market.

https://www.nzherald.co.nz/nz/housing-crisis-now-housing-chaos-emergenc…

Inflation is rampant at the moment for non-asset owners;

https://www.nzherald.co.nz/nz/escalating-rent-prices-drive-lower-hutt-f…

#rentcontrolnow

Up
0

Yes agree.
But in official terms we need to go with the CPI, notwithstanding it's flaws. At present it is recording very low inflation.
Of course it's a crock, especially as it excludes house price inflation.

Up
0

I believe food price inflation also matters. As does inflation of power prices.

Up
0

My property in Auckland CBD has gone from $525pw two years ago to $425pw. The trend seems to be replacing 4 foreigners in a small apartment with Kiwi mothers and kids on WINZ.

Up
0

Kate, residential rents are in the CPI calcs now. But not sales, so house price inflation not included.

Up
0

Rent control never works

Up
0

Shipping rates from China have increased by around US 4000 for a 40' container over the last 6 months. Plus the AKL port congestion fee of USD 600. Some simplified maths .Divide that over 100 NZ$1000 dollar washing machines. That is NZ$65 a machine added to the landed cost. Or 6.5% price increase at least. If it is passed on. We have had a decade of prices staying flat for items like this. Inflation is coming at the same time as we will be least able to afford it.

Up
0

Key words being 'at least'. I will be extremely but pleasantly surprised if that's all we see while there is still cheap money floating around.

Up
0

Of course we can afford it.
The 60 month interest free offer just becomes 66 months interest free.

Up
0

Someone, somewhere, has to borrow against a house to introduce that extra $65 into circulation. That will push interest rates down and make the borrowing affordable, until interest rates can't be pushed any lower. Or when someone loses their job and can't pay.

Up
0

In the 100 Covid free days in Mid 2020 we had an average of 1 positive case in MIQ each day. We could not successfully contain it and eventually it got out. We were back to level 3 and people died. Now we are double digits every day and more infectious strains to boot. Confidence is not high. MOH need to beg,borrow or steal a few thousand doses of vaccine. Get it to NZ and get the front line MIQ staff vaccinated right now. Not in April

Up
0

Perhaps those few thousand doses belong in places such as the Pacific isles where they have shonkier health systems.

Up
0

Although the virus has long been eliminated from his system, unfortunately my friend still has elements of systemic malaise as well as antibody production. That malaise is a reminder that the effects of COVID-19 can be far from trivial, even for those who do recover.

Yes, the so called 'long-COVID' effects are very common. In the US alone, there are 14m recovered and 9m active cases. I do wonder what the long-term implications of long-COVID will be.

Up
0

It still seems to.me that serious questions need to be asked of the CCP's handling of it all in the early days. Unfortunately I don't think WHO will ask those questions. I think they were complicit in it all.

Up
0

There's evidence it was already circulating in Italy in September 2019, and other evidence showing it in Italy and France in December 2019. That means it was probably in New York in December also.

The idea that it could be contained in China in late 2019 is a fantasy.

https://www.stuff.co.nz/world/europe/123414756/covid19-virus-antibodies…

Up
0

That evidence is far from categorical.
Even if it's true, that does not absolve China as the mass outbreaks started in Wuhan from December, and yet the CCP kept it under cover for weeks.
WHO did not cover themselves in glory either, they maintained for quite a while after the outbreak started that travel should not restricted.

Up
0

I wonder if any tracking research is being done on all the positive cases that have been detected at the border & quarantine? All these cases should be reported - xx since April 2020, how many got very ill, how many died, how many were unaffected, how many are being tested for antibodies, checks for lingering disease symptoms, etc.
1000s are walking around NZ - how are they getting on?

Up
0

I know someone who now has it for a 2nd time. 1st time, lost smell and taste with no other symptoms. This time they've got the new strain and is similar to bad flu. Had tested positive for antibodies before contracting it again so that's how they know they've been re-infected.

Up
0

Yes, it is odd that of all the positives reported in MIQ, we've not heard of any yet requiring hospitalization.

Up
0

Demand for travel among the elderly and those with serious preexisting medical conditions has been well down for some reason over the past year.

Up
0

I think there have been a couple, but they were a few months ago.

Up
0

Probably about the same effect as long McDonalds or KFC.

Up
0

I predict that most of the world will go back to being somewhat normal by mid year. The northern hemisphere summer, combined with a large portion of the population being vaccinated or having immunity though infection will make COVID19 somewhat less of a issue.

Up
0

Yeah I agree I am fairly optimistic on things getting much better from mid year.

Up
0

There is a strong case for Stagflation in the US, maybe just Inflation in NZ? I guess time will tell but we are already seeing Inflation across the board.

Up
0

Have a look at the CPI basket of goods list.
https://www.stats.govt.nz/methods/consumers-price-index-review-2020
What on this list do you think will go up in price over 2021? There is your answer on inflation. It is a lock. Just hope they can suppress reality for long enough that I can re fix my mortgage long and low in mid 2021

Up
0

Interesting that the CPI includes the change in price of purchasing new homes BUT excludes the land component.
Given that it is the rise in the price of land that has been primaroly driving house prices higher coupled with a shift towards smaller housing (on an average floor area basis) this would seem to me a bit of a distortion.
Thoughts?

Up
0

Weightings are applied/changed to various categories. A cynical person might say that the cost of living seems to be rising all the time but official inflation barely registers. Could there possibly be manipulation to suppress reported inflation as justification for continued low interest rates and the consequential perpetual boom in asset prices.

Up
0

I Wish they actually showed the raw data, with receipts as evidence & any adjustments shown. For 20k-30k a year that could easily build & maintain a website which showed this information.

Up
0

If actual inflation is reported then it is harder for businesses to deny matching claims for wage increases. And who controls the government via donations...? So of course there is "tuning" of what is included in the CPI calcs. I would love someone like Jenee to interview the government statistician under bright studio lights.

Up
0

I think this deserves extra scrutiny for sure. To my non-economist eyes it looks cynical on several fronts (especially housing) but maybe there is validity in the way it's put together.
Does anyone more acquainted with the CPI know how we can view how housing inflation in the new purchased housing component has tracked? I would be fascinated to know, as stated above the larger amounts of smaller new housing might be painting a picture of limited inflation in that component, which would be a distortion.
Is it the total cost of the dwelling, or the per square cost.

Up
0

I like 'cost per bedroom' as a measure of value as to what you're actually getting.

Up
0

I know they take improvements in technology into account when measuring inflation. So as TVs get larger, even if the nominal price remains the same, that counts as deflation because you're getting a better product for the same price. Similarly internet and cellphone plans have gotten better while staying at roughly the same price, so that counts as deflation.

They're trying to measure the actual change in value for what each dollar buys.

Thus I would be surprised if they weren't also adjusting house values in some manner to account for this. But I have not heard that they definitely are doing this for houses, nor in what manner it might be achieved.

Up
0

Maybe Jenee could dig. It would be interesting to know more on how they do the new housing component.

Up
0

Any thoughts on my point higher up? If house price inflation is measured on sold price less land value, then if the mix of new houses being built is smaller (likely in big centres, especially Auckland) then the average cost might be steady or lower even if build costs have risen. Which would be a distorted view. I would like to.know whether it is this crude or more nuanced.
I think it's an important question.

Up
0

Am I reading that chart right? It weights housing and utilities at less than 30% of household expenditure? When people on the frontlines are stating that;

... families were spending anywhere between 60 to 80 per cent of their household income on rent- forcing many out of the private rental market.

If only the real world reflected their mythological 'basket'.

Up
0

This would be saying the quiet part loudly though.

Up
0

I don't rent so should my CPI weighting be 0% for rent?

Up
0

The weighting looks at both mortgage and rent outgoings.

Up
0

The weighting looks at both mortgage and rent outgoings.

Up
0

Yeah. But quite a few people don't spend anything on housing (ie. Mortgage free) or spend say 0-30% on it, so wouldn't the weighting be taking that into account?
But yes it's not particularly sensitive to those at the bottom of the heap.

Up
0

Yes I assume it must take into account those that are mortgage-free - as I can't fathom any other way they get to that weighting - and if they do 'count' those with nil outgoings (aside from rates) on housing, then the methodology is absolutely flawed.

Up
0

I assume they apply a similar weighting methodology for Alcohol and Tobacco as I imagine there are plenty of individuals or households that do not drink alcohol or smoke? How many people don't spend money on Education?

So while a packet of smokes might cost $100, if only 15% of the population smoke, then this is only weighted at $15?

Up
0

Keith, it seems to me that by 2030 synthetic milk that is the equivalent (if not superior) product to cow's milk will exist. I expect it'll use substantially less water and land to produce, and obviously less food miles if China can make it themselves.

So what does that mean for the NZ economy, based substantially on milk powder as it is?

Up
0

You cant call it milk if it doesn't come from a mammal..bala blah blah.

Up
0

Lanthanide,
My own judgement is that there will still be plenty of demand for real milk, but that it will have to be A2.
Milk is a very complex product and synthetic milks are still a long way from replicating what nature has produced.
Meats (or at least mince-type meats) are a lot easier than milk to replicate synthetically.
Keith W

Up
0

Reliable story,but second hand, that quarantined people are mixing with the newly arrived inflight passengers in the hotel gym. Leaky boat?

Up
0

Everyone is quarantined to their rooms upon first arrival until their first test result comes back. Has been this way for at least a couple of months now.

So if this mingling is true - and I am doubtful of it - it would only be people who have passed 1 negative test who can do it. Obviously this is far from a guarantee, but does substantially mitigate the "that's so obviously stupid, why do they let people do that?" factor that such a claim would elicit.

Up
0

According to an OIA request there were 389,515 PCR tests carried out in the 39 days between the 6th August and 14th of September coming at cost of 74 million dollars. I came into the country and got put in a 5 star hotel - (absolutely lovely! staff were fantastic) - but my criticism is the immense cost and likely pointlessness of it all. Speaking to an elderly friend yesterday who told me she has a friend who's had 5 PCR tests! Her doctor visits are free if she gets a PCR test you see, so nod nod wink wink and a PCR test every doctors visit! New Zealand is going to be a very poor country when this is all finished and we acknowledge that COVID will be endemic and not that bad.

Up
0

Hugs and kisses mate. Team of 5 million. Unite in the fight against Covid. Sign in to stop the virus. etc. etc. Oh I forgot: Be kind :)

Up
0

it’s time to bend over and kiss your ass goodbye

Up
0

Another great analysis Keith.
Down on the farm, the season has surprised many. Meat and dairy prices have remained solid. Grass growth has been very good in most areas except South Canterbury and North Otago.
While my wool income has taken a 30 grand hit, I have managed to sell lambs so far at a similar per head price to last year as carcass weights are well ahead due to a good spring and now a summer which has not been too hot. I have more feed than ever before at this time of year and will manage to have lamb carcass weights 2 kg up on last season. I have managed to carry over 50% more beef cows over winter and will gain the benefit of this come the calf selling season, while also selling more cows as culls. Mutton prices too have been solid due to good demand from China. Our reliance on China certainly frightens me, but thank goodness for them!
What started as a scary season back 7 months ago, with many stressful nights with the unknown of global pricing from the effects of COVID 19, is now fast becoming probably the season that I’ll have the best net profit I have ever had in 17 years of farming. Of course the taxman will come knocking and will no doubt cause cashflow problems in the coming season with large provisional tax payments. I hope other sheep and beef farmers are also feeling upbeat and are having a good financial season.

Up
0

Yes it is a great season,the livestock are doing really well and it is always enjoyable farming when you can't keep on top of the grass. Don't worry about the tax man, it's a good sign when they come knocking because it means you are making money. There are to many years in a farming career when we pay little or no tax which means no progress.

Up
0

Always good to hear from Actual Practitioners. Keep it coming.

Up
0