If you're thinking "whew we dodged a bullet" over Covid-19, think again. Healthwise, New Zealand did, at least so far. But the coming recession is inevitable and it is going to be like no-one alive has experienced. What's your plan?
My colleague Liam Dann summed our current position up perfectly as a Wile E. Coyote moment. That's the moment in the Roadrunner cartoons when the coyote runs off a cliff and his legs keep running, until he looks down and then falls.
The economy is still in that mid-air moment, but the fall is inevitable.
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Economist Gareth Kiernan of Infometrics really put that freefall into perspective for me by pointing out that New Zealand's gross domestic product (that's what we produce) fell by less than 3 per cent in the GFC. In the three months of April, May and June this year, it's predicted our GDP will fall between 11 and 20 per cent.
Those are eye-popping figures. I worried at the mall last weekend that Kiwis have their blinkers on when it comes to the coming recession.
Unemployment is expected to rise to between 8 and 10 per cent by early next year, compared to 4.2 per cent at the end of this March, says Kiernan. That means unemployment is coming to people around you.
Economists are predicting house price falls of between 6 and 12 per cent, with the decline starting after mortgage holidays finish in September, says Kiernan. That's not a problem if you don't have to sell. But if you lose your job and can't pay the mortgage or your tenants stop paying rent - that's another story.
We're unlikely to see the economy bounce back until at least 2022, says Shane Solly, a director and research analyst at Harbour Asset Management. That's a conservative estimate, he says.
More than any time in our financial lives we all need a plan to get through the next couple of years. That plan is going to be different for everyone. But it needs to cover how you're going to get income; pay your rent/mortgage if you lose your job, and what you're going to do about your savings and investments.
Can you stomach taking a job well beneath your current standing if you have to? Some people who lost their jobs in wave one of Covid-19 have turned up elsewhere. Like the pilots who are now sorting parcels at NZ Post, or tourism workers stacking shelves. If you have a stable job that you hate, you might just want to sit tight for now and find ways to love what you do.
Think about how you can control your budget to live within reduced means. Can you live more modestly? Or do you have things to sell, like your second car or other belongings. This all needs to be part of the plan.
The other thing that could happen is your KiwiSaver and other investments drop sharply again. Think now about how you coped in March when the markets crashed. Can you stomach it again?
Just don't do anything rash when it comes to your investing, says Solly. Markets bounced back, and investments are priced on some of the perceived risk going forward.
You can't guarantee access to your KiwiSaver even if you lose your job. If you have other savings you can call on at the bottom of the cliff, you might want to ensure they're well-diversified, says Solly.
If you can save a month's income as an emergency fund, do it. Or at least pay down any credit card or other debt as fast as you can.
Kiernan makes a good point that most of us will be fine. Even in the Great Depression only about a quarter of people were affected financially. It could, however, be any of us.
If ever there was an example to show that financial shocks can come out of left-field, it's Covid-19.