COVID-19 is only the latest of many epidemics and pandemics to have afflicted the world throughout history. Each pandemic is unique in terms of the nature of the disease, the human response and its historical context. However, there is a lot to be learned from past pandemics, which can provide insights into how the economy may change as a result of COVID-19. So, what are some of the themes that have emerged after past pandemics?
Prices are rising quickly across much of the developed world with inflation in OECD countries increasing at the highest rate since 2008. In the US, core consumer inflation has surged at a pace not seen since 1992. Central Banks have so far maintained the inflationary pressures are temporary and will abate on their own, although US Fed officials acknowledged on Wednesday that price rises may last longer than they expected.
The Economist called it “the West’s biggest economic-policy mistake” undermining economic growth and the public’s faith in fairness and capitalism. The mistake the Economist is referring to is the misguided policies promoting home ownership which created the developed world’s most serious economic failure. At the root of this failure is the application of planning rules that have restricted housing supply, particularly close to major cities. This has led to soaring rents and house prices in the cities, hindering workers from moving to areas where the most plentiful and productive jobs are located, and ultimately slowing GDP growth.
By Professor Christoph Schumacher
In a speech delivered just before yesterday’s budget, Finance Minister Grant Robertson acknowledged that the New Zealand economy had its problems, even before COVID-19 hit our shores. Housing affordability, climate change, child well-being and productivity issues were enormous issues the country needed to face up to.
The announcements in the 2021 budget won’t have given many business owners confidence that from their perspective things will be changing any time soon. In fact, they may well be in for more of the same, only with higher levels of debt and ongoing shortages of skilled staff.
While many advanced countries have suffered from falling productivity since the Global Financial Crisis, New Zealand’s productivity performance has been lacklustre since the mid-1990s. Our productivity growth since 1996 has been a paltry 1.4 percent and our output per hour worked is 40 percent below the top half of OECD countries.
The rapid development of COVID-19 vaccines has offered hope that we will one day soon see countries returning to a semblance of normality. However there is no doubt COVID-19 has been devastating for the global economy. Global GDP declined the most in 2020 since the Great Depression with the loss of 8.8 percent of global working hours equivalent to 255 million full-time jobs.
A faster vaccine rollout internationally is expected to boost world GDP by 2.8 percent according to the latest KPMG Economic Outlook. On the other hand, a global delay in the rollout of vaccinations until the end of…
In uncertain times, people tend to save more. In 2020, with the pandemic raging and people concerned about both their health and their jobs, it’s not surprising that people spent less and saved more.
In Australia, the household savings to income ratio increased to a whopping 19.8 percent in the June 2020 quarter — up from 6 percent over the previous quarter. Even by March 2020 that saving ratio was starting to increase (up 2.4 percent from December 2019):
Last Thursday’s GDP figures showed a surprise contraction in Q4 of 1% as the border closures hit the New Zealand tourism sector particularly hard. This came on the back of a particularly strong rebound in Q3 13.9%. The slump came as a surprise to most forecasters with market expectations being for a modest 0.2% increase. GDPlive was an outlier, showing a much more pessimistic prediction for Q4 and 2020. However, it seems that the machine learning model was much closer on an annual basis than the human forecasters, raising the possibility of a double dip recession.
By Professor Christoph Schumacher
When the government releases their previous quarter GDP estimates, we always check to see how close our machine-learning predictions were. Prior to the pandemic hitting our shores and our economic fortunes, our forecasts have been very close to official figures, and in many cases spot on.
This time, however, our Q4, 2020 quarterly and annual growth predictions of around -4% and -3.7% respectively were considerably more pessimistic than the just-released values of -1.0% (quarterly) and -2.9% (annual). What could have caused this discrepancy? There are three points worth highlighting.
First, GDPLive is powered by a machine-learning…
So-called zombie companies have been on the rise since the Global Financial Crisis and there are fears that the pandemic will only aggravate the problem. There are concerns that these firms — neither dead nor fully alive — will drain resources from the economy, slowing the recovery and dampening already sluggish productivity growth across most OECD countries, including New Zealand.
Virtually non-existent 30 years ago, by 2019 the number of zombie companies in advanced economies accounted for 13 percent of the total, according to the Bank of America Merrill Lynch. These companies have enough resources to continue to operate but…