17 Apr 2020

Level 4 to level 3 - What is the data telling us?

From Nine To Noon, 9:08 am on 17 April 2020

As the government prepares us for what life will look like in alert level 3, that data on whether we should come out of lockdown is "inconclusive".

There were 15 new cases of Covid-19 announced yesterday, new case numbers have been declining for nearly two weeks now, there are just over 1400 cases in total and 16 clusters.

Former Assistant Reserve Bank Governor and executive director of the economic think-tank, Motu, John McDermott is leading the data science team at Wigram Capital Advisors. The group's projections have been used by the government during lockdown.

“There’s some good news and some perhaps not good news,” McDermott told Nine to Noon.

“The good news is the effective reproduction rate of the virus has fallen below a critical value, it’s less than one so we’re getting more recoveries than we’re getting new cases,” he said.

“Right now, the reproduction rate for New Zealand is about .8 so that means for every one person that has the virus, they’re passing it on to less than one person, so that’s why it’s dying out.”

It’s critical that number stays below 1 once we move out of each level because if it doesn’t, we will have to go back up a level, he said.

When moving out of level 4, we have to keep monitoring the reproduction rate of the virus, McDermott said.

“But the difficult thing is, the rise of the virus was very rapid, and the decline seems to be very slow and steady.”

It seems we’re in a period of diminishing returns and the past five days we’ve seen the same number of new cases, he said.

“We’re not getting any improvement from the extended lockdown.”

Testing needs to now be extended and our ability to contact trace expanded, McDermott said.

“We could be spending millions of dollars to do this, so we can isolate individually, but that payoff would be billions of dollars to the economy.”

If you have symptoms of the coronavirus, call the NZ Covid-19 Healthline on 0800 358 5453 (+64 9 358 5453 for international SIMs) or call your GP - don't show up at a medical centre

He said unlike other countries, New Zealand has a chance to focus on the cases that are positive and try to isolate contacts.

Should we be moving out of level 4 next week, or is it premature?

“The data on that, just using the data, is inconclusive.

“The question that we need to ask is does New Zealand have the capability and the capacity and the resources to shift strategy from having everybody locked down to focusing on a smaller number of cases, those have got symptoms and those who have had contact with people that have had symptoms?”

There probably needs to be 5000 more people available to do this, he said.

Economy won't bounce back quickly - economist

The economy will take longer to rebound from the Covid-19 hit than Treasury is forecasting, according to Infometrics senior economist Brad Olsen.

He predicts it will be towards the end of 2023 when we start to see an economic recovery and told Nine to Noon consumer spending would drop by 4 percent and unemployment was likely to be in double figures.

“We need to be very, very cautious of how much optimism we're putting out there.

“This is a huge event, unemployment heading to nearly 10 percent when during the GFC it only made it to 6.7. That means a lot more people out of jobs, and I just don't see the New Zealand economy being able to bounce back just so quickly,” Olsen said.

The hospitality sector would have a particularly tough time of it, he said.

“One of the areas I think could be needing a bit more support is that hospitality sector, and perhaps they need a little bit more direct funding, because still, for some of them under level 3, they're not going to be able to get back into the operations, but they're still having to pay rent.

“As we move forward, though that economic recovery, that spending on our economy is going to be critical. It's a make or break position as to how quickly we might come through this. But I still feel that the realistic position is that the economy does take a little bit while longer to fire up again.”

The drivers of growth the economy has had in the past would not be there, he said.

“Without those tourists, without that spending, without that private sector activity - because we know businesses aren't going to invest either. That softer period is going to persist for a lot longer. And I think that's where I see the difference coming in - that we don't just rebound, we don't go back to normal, because normal doesn't exist anymore.”

Tourism would be set back years, Olsen said.

“Those guys are not going be in the same position, they're effectively going back to the level of activity they had 15 years ago.

“That's the scale of difference. And because of that, I think we won't have all of the businesses operating in the same way.”

Demand is likely to remain subdued for the next couple of year, he said.

“Even once we come back out of level 3, and even out of level 2, people around the country are going to keep their money much tighter in their hands, and they're going to be spending much more on essentials only.”

He expected consumer spending to drop by 4 percent over the next year.

“That doesn't sound like a lot, but the concentration will be in discretionary items.

“People aren't going to go to cinemas and similar. That requires businesses to find a very different way of unlocking that cash. They’ve got to make a very good proposition to get your eye into the store and spending.”

A consumer boost would help this sector, he said.

“I think one of the things that the Government can consider, not now but in the future when the economy does start to get back towards normal, not all the way but towards normal is giving households a bit of cash in their hand saying go and spend it - go out into your local are, go to your favourite curry place, spend the money on locals and let's get those tills ringing.”

A likely drop in net migration would also mean upskilling Kiwis, he said.

“We want to make sure we get Kiwis into some of these roles, we have to get them the right skills to do those jobs. And that's always been an issue New Zealand’s struggled with, we've brought in skilled migrants to fill some of our labour shortages. But we've never actually got enough Kiwis to be able to plug that gap eventually.

“So, there is going to be a massive need to retrain and redeploy New Zealand workers into these different areas that need work. And we know there are areas that need work even right now. So that re-education campaign is going to be critical to get Kiwis those skills because otherwise they are going to suffer. And we don't want them to turn into long term unemployed and on a benefit for a lifetime.”

With construction anticipated to be softer in the residential and non-residential sectors, infrastructure projects could fill the gap, he said.

“Our latest forecasts, out this morning, do point towards construction levels for both residential and non-residential activity falling quite considerably over the next year or two.

“We need to keep those people employed if we don't have the residential non-residential activity, and that's where the Government's work on infrastructure is make or break for construction.

“They have to get that one right. If they don't; one - it really harms New Zealand's ability to repair the economy, but two - it could see unemployment rise even further.”