New Zealand's Economic Response to Covid-19
New Zealand is unique. Being an island in the Southwestern Pacific with a population under five million, it's not fair to use them as a barometer of infection rate goals. But, regardless of its size and isolation, we can take some economic lessons from them in how to deal with a crisis.
New Zealand's early response to Covid-19 reaped results that were applauded around the world. Travel bans and self-isolation were brought in by NZ very early on, and they remained stern on the issue of travel throughout. Compare this to Europe, which was essentially open borders last summer, and it's no wonder why NZ kept infections low.
New Zealand also had some of the toughest social distancing measures in the developed world. But what really impressed was that the go hard and early response extended to fiscal policy, not just lockdown measures. The most notable package of this, albeit not the only, was the NZ$50 billion Coronavirus response and recovery fund.
Whilst New Zealand did enter one of its worst recessions in recent history, which is taken as read given the circumstances, its recovery was a triumphant 14% growth in the third quarter.
Only 13% of consumers were pessimistic in forecasting the lasting impact of Covid-19 on the economy - which goes hand-in-hand with the appetite for their spending. Given this was supposed to be, on paper at least, one of the most unique and toughest challenges to the global capitalist economy where activity and trade stagnates, it hasn't phased New Zealanders.
The stimulus was more than just injecting money back into the economy, and this is the real lesson learned. Advocates of Keynes will claim the multiplier effect - that is the net effect of economic output being greater than the dollar amount of government stimulus - is in full throttle here. Consumers not only have their pockets lined to spend early on, but they've avoided the more dangerous trap of all: saving with anxiety around spending.
This is where the vicious cyclical nature of the business cycle and deflation traps occur. New Zealand, being in a very good position of around 50% debt-to-GDP, saw this as the perfect opportunity to use debt-driven stimulus to offset what is on paper an unprecedented drop in productivity.
This can best be seen in the decadent gambling sector that's driven by disposable income. With land-based casinos forcibly closed, platforms such as online casino NZ have thrived. This can only be a sign of consumer confidence, and has actually meant that casino giant SkyCity has offset its land-based casino losses. Online casinos have been growing exponentially prior to the pandemic due to their technological advantages and game development innovation, but the lockdown has actually worked as a vehicle that's kept the growth strong.
Missed opportunity for New Zealand
The only real regret from New Zealand's Covid-19 response doesn't come from not doing enough. The resources proposed and spent were plentiful - the issue was where they allocated them. With every crisis comes an opportunity, whether it's a stock market speculator or a surgical mask salesman. The opportunity New Zealand had missed was that such vast spending could have come at a timely moment to move towards a low-emission economy.
The biggest thing holding back nations moving more rapidly towards low-emission solutions and infrastructure is of course the insatiable budgets required for it, or so they argue. But this was a time where they had the checkbook out, ready to spend tens of billions, yet it wasn't directed towards clean energy. After all, where it is allocated isn't going to change that Keynesian multiplier effect.
Currently, the Energy Tracker Policy has New Zealand reported (taking into account policy that supports types of energy) as 44.6% fossil fuel and 54.5% clean energy - with 1% other. Something that, at some point, they will have to tackle head-on.