@Hooroo said in Coronavirus - New Zealand:
@JC said in Coronavirus - New Zealand:
@Hooroo TL;DR = Too Long, Didn’t Read
I’m not suggesting the entire economy will tank. Major exporters will probably weather the storm, with the caveat that if NZ appears to be doing better than our trading partners the NZD is likely to strengthen and repatriated income will be lower.
But the internal SME sector is likely to be decimated. As well as the impacts I related above, that will have the additional negative effect of the companies and their employees paying lower or no tax
I guess that is what I am trying to understand from the likes of you (In terms of your thought process around this)
I'm talking about the economy as a whole. If out biggest components of it are still going well and will likely see an increase in revenue in the short term given where our FX rate is and the primary commodities are increasing in price currently. Won't the impact on the economy as a whole be OK overall? There will just be subsections of pain?
Just on GDP most commentators think that’s going to take a hit of at least 10% year on year. That’s pretty optimistic I think:
i. There are stories of primary producers that have containers on the water now who are being told the recipients can’t pay.
ii. Others can’t get hold of containers and we are actually bringing in shiploads of empty containers.
iii. Small businesses (1-19 employees) recorded sales of $153bn in FY2018, So just based on sales alone you’d expect that taking most of them offline for a month will take 8% or $12bn out of the GDP for a start.
iv. Some supposedly essential businesses aren’t able to generate much turnover as they have no customers. Gas stations, chemists, GPs, builders, banks and FIs are a good example of this.
v. Consumer discretionary spending is probably as low as it’s ever been.
vi. FIs aren’t lending. They’ve tightened up their lending policies for personal loans for two reasons: they don’t want to lose money and they don’t want to get accused of predatory lending behaviour. Mortgage lending is, understandably, at a standstill. They are also preparing for large increases in loan impairments, so once we are out of the lockdown it will likely be some time before lending comes back to normal.
It could go on for a while. The biggest hurdle to recovery is consumer and business confidence. You can’t convince people who are worried about losing their jobs to spend, or companies who worry about their survival to invest. Normally though there is some offset because people sit on their savings and earn interest, which is a direct GDP contributor, but right now savings rates are close to zero. And that money is going to be idle on banks’ balance sheets, because it’s not going to be lent.
There’s also a big unknown. We don’t yet have any data on how the shortfall in personal earnings correlates to people who have no savings or disposable income. It’s all well and good to contribute 85% of wages, but who is absorbing the rest? Families that regularly burn through all their weekly income - and more - will struggle with 15% less. Businesses? A company with 20 staff has to keep paying 3 people’s wages with no revenue. At minimum wage that’s 9 grand in 4weeks. You tell me what kind of turnover the average company has to generate at normal margins to be able to recoup that $9k?