New Zealand will not return to normal and needs to build back better. That was the message from BNZ economist Paul Conway at a Waikato Chamber of Commerce lunch in August.
Speaking the week before a fresh Covid-19 outbreak in Auckland, Conway said the world’s economy was changing and New Zealand’s economy was not immune.
The pandemic and the associated lockdowns around the world were having a huge impact on economic behaviour and spending patterns, he told a forum at Wintec’s Atrium.
“The world is rapidly changing, and the New Zealand economy will change with it, whether we like it or not, whether we’re ready for it or not.”
But he also painted a picture of a national economy that had been performing poorly for decades.
“There’s no going back to our old economy,” he said. “And you know what, we wouldn’t really want to, because it hasn’t really been a strong performer, especially in the space of productivity which is the basis of long-run growth.
“Yes, the New Zealand economy produces lots of jobs. But because of that low productivity, many of those jobs don’t pay particularly well and there are even people with jobs who struggle to get by in this country.”
Conway forecast a W-shaped pandemic economic response in New Zealand, after activity rebounded better than expected following the first lockdown. But a second downturn was inevitable, he warned, with “a whole heap of destruction” over the coming months and probably years.
“This second downward prong of our W, it’s locked in, there’s no way around it.”
He said it could be made easier through government support, assisted by low debt. “But we should do that in ways that don’t get in the road of this process of creative destruction, that don’t slow it down.
“It’s about having a flexible and resilient economy that can absorb the shock, and adjust.”
As for the final upward prong of the W, the rebuilding, he said that needed to involve dislocated economic resources finding their way into new, more productive and more lucrative opportunities.
“How do we build a more productive economy that delivers for all New Zealanders? There’s obviously a policy agenda attached to that and I live in hope that our politicians will start talking about it.”
Conway was part of a panel of four economists, including Westpac industry economist Paul Clark, ASB senior economist Mark Smith, and Infometrics senior economist Brad Olsen.
They were joined by National leader Judith Collins during a visit to the region.
Olsen ran a similar argument to Conway about building back differently, and added some Waikato figures.
He said New Zealand spent $3 billion less through its first lockdown period, and spending in the Waikato from April to June was 82 percent of its normal. Within the region, he said Waipā district was doing well, while others, including Matamata-Piako with Hobbiton, were not seeing the same amount of spending.
Like Conway, he said the global picture was deteriorating. Primary exports remained a key area, but products were unlikely to be bought at the same levels during the pandemic.
“We need to look at our infrastructure. What are we building? How do we get our productivity moving? How do we ensure that as we produce the fantastic goods in the Waikato – New Zealand’s breadbasket with about 16 percent of all food production coming from this area – how do we make sure we get it to the right place as quickly as possible and as cheaply as possible?”
Conway said businesses had a role to play in lifting productivity by doing things better. Digital tools and technology were critical to that.
“Digital and data are the infrastructure of knowledge. And knowledge is fast becoming the key driver of growth in the 21st century economy. So knowledge is the new oil.”
The underlying reason for New Zealand’s low productivity was that its domestic markets were typically very small, and the vast majority of its firms were not connected into the global economy, he said.
Digital technologies could expand markets and make it easier for small remote businesses to engage internationally.
Rebuilding for a new economy also required innovation.
“Now, innovation is not always about doing remarkable things that push out that knowledge frontier. It’s also often about learning how leading global firms in your industries operate, and leveraging that knowledge to catch up to the frontier.”
Collaboration was important as many small firms lacked the resources to innovate. “You’ve got a world class university here in Hamilton – how effective are you at being across the knowledge that’s coming out of that institution and converting it into growth?
“Is there potential for your businesses to work together to solve common problems and to create dynamic clusters of world’s leading firms?”
Conway finished on a hopeful note.
“It might not feel like it right now, but if we play this right, we could emerge from this crisis with an upgraded economy that sustains higher well being in New Zealand for generations to come.”