With the disclaimer that we do not employ economists, Beany has been looking at the data & listening to budget commentary so we can provide some basis for decision making for small business owners.
What will happen for jobs, different sectors, and how long will the recession last? What is the government doing to help and how can we help ourselves?
Unemployment Heading Up
The jobless numbers have risen from 142,000 in March to 174,000 now which is an unemployment rate of 5.8%. Perhaps more shockingly, 59% of all Kiwi workers are now supported by the wage subsidy or the government.
The government is forecasting that we will peak at 9.6% of unemployment in June 2020 and then recover to pre COVID levels of 5% in 2 to 3 years.
To give some context, unemployment rates in the Great Depression were at 33.2% and after the 1987 crash and early market reforms in the 1990s, the rate peaked in 1992 at 11.4%.
Whatever, the final numbers, we can expect unemployment to rise dramatically and stay high for some time. How long will depend on when border controls can be lifted and/or a vaccine found.
Government Support Of Business & Budget Update
The government has passed legislation to spend up to $52 million on its response to COVID-19, compared to $40 million for the Christchurch earthquake. It has spent at least $10 million on the wage subsidy and is looking at a package of other measures, such as tax changes and cheap business loans.
The budget confirms spending of up to $50 billion with $30 billion now either spent or committed as follows:
- Wage Subsidy is now extended for another 8 weeks although you have to show a reduction in revenue of 50% year on year. The same weekly rates will apply.
- $3 billion for infrastructure
- $1.4 billion for apprenticeships & trades training
- $1.1 billion – green employment, creating jobs such as pest control and tree planting
- $400 million to tourism business recovery
- 8000 state homes built
- $32 million for food banks
- $4 billion for food for 200,000 more students in schools
The balance of $20 billion will be spent in the “rolling maul” of the unknown future facing the country. Grant Robertson has held back this amount to develop more strategies to help as the situation develops.
Some commentators have criticised the lack of strategic vision and concrete measures to support businesses.
There will be a deficit of $28 billion this financial year with deficits being forecast for the next 6 years.
Which Sectors Will Be Hardest Hit
Without a doubt, every sector will be negatively affected by COVID-19. But some sectors will bear the brunt more than others. Tourism and hospitality businesses are expected to lose a third of their workforce (53,000 jobs lost) with retail losing a further 41,000 jobs. International education will be hard hit and sectors that rely on discretionary spendings such as arts and recreation. Even the businesses currently doing well such as supermarkets are expected to perform less well as we come out of lockdown with many people out of work.
It’s great to see some money specifically targeting tourism businesses although it remains to be seen if $400 million is enough to really help.
How Deep Will The Recession be?
This is the hardest question to answer as there are so many variables from the spread of the virus and the timing of a vaccine, to a myriad of decisions made here and overseas.
The only thing we know for sure is that there will be one and it is forecast to be at least as deep as the early 1990s for New Zealand. We are in better shape than many other countries with our national debt at 19.3% of GDP at the start of the pandemic, compared to Australia’s 43% or the UK’s 80% (Dec 19). This means we can at least borrow our way to keep the nation’s wheels on the bus.
This budget is forecasting that after the spend our national debt will be at 54% of GDP.
The treasury is now forecasting 1 year of recession with a contraction of 4.6% to GDP.
Decision Making in Tough Times – What you can do
We’ve been compiling the best advice from all sources and have come up with a 3 point plan for survival:
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