Dwelling on the worst-case scenario doesn't seem particularly helpful right now - at least for those of us with little control over events. Photo / 123RF
Dwelling on the worst-case scenario doesn't seem particularly helpful right now - at least for those of us with little control over events. Photo / 123RF
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
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Striking the right tone on our economic reporting has never been more crucial or more difficult.
I knowthat some reports I filed last week upset people. Some wrote to express their anger.
Look, they upset me too.
Assessing the outlook for the economy in the next few months is not fun.
To quote BNZ chief economist Stephen Toplis: "All forecasts are nonsensical but we think it important that folk understand the shape, if not the magnitude, of the way ahead."
The goal now is to create a realistic context for decision-making.
My strategy for heading off unhelpful levels of anxiety is to put medium-term scenarios into soft focus.
Things are so uncertain right now that any specific numbers about the damage done in the next three to six months are fuzzy.
Instead, I'm staying focused on the short-term situation, with regular glances out to the longer-term horizon.
In other words, I'm dealing with what is right of front of me, living one day at a time day and (humming the theme to the 1970s sitcom - for those who remember).
But I'm trying not to lose sight of the fact that the pandemic is ultimately a finite issue – even though its impact will linger for a long time.
Economists always present a range of scenarios when they assess the future.
If you want to go there the economist Nouriel Roubini, who is sometime dubbed "Dr Doom", is broadcasting live from his bedroom every day.
He's warning of a "Greater Depression" and unfortunately many of his concerns about the current US pandemic seem highly valid.
As the past few weeks have shown us, clinging irrationally to best-case scenarios is also futile.
The economists I talk to tend to stay focused on a base case but remain realistic about shifting that base case quickly as the facts change.
Of course, all the base-case scenarios have shifted south in the past few weeks.
They may yet shift further.
Although the big shock - the realisation that this is an unprecedented historic event that will touch every aspect of society - has now been baked into all serious thinking.
There have been bright spots and it is important to make sure we recognise them.
The latest summary by ratings agency S&P Global notes China's economy is now gearing up again after a huge slump in the first quarter.
Expect some swings in the markets for some time yet. Photo / 123RF
That's good news for New Zealand.
Credit markets, which represent the inner wall of the global economic fortress, have held.
It is vital that the global financial system holds up through this crisis to maintain confidence and stop the enormous levels of debt in the system collapsing
Credit markets have been propped up by decisive action by central banks.
The US Federal Reserve has launched "infinite QE". It is prepared to buy an unlimited amount of government bonds to keep interest rates low.
New Zealand's Reserve Bank has launched plans for up to $30 billion of QE and it is has had the desired effect.
We've seen massive fiscal rescue packages from governments to support companies and jobs - we'll likely see more.
That's seen sharemarkets rebound - although there will be wild swings for some time yet.
Ultimately, it is the view - now mainstream - that it will take years for economic activity to return to 2019 levels that has been upsetting for many people.
That is a deeply unpleasant leap of understanding that we've all had to make in the past couple of weeks.
A lot of what economists like Roubini are saying - in dramatic and sometimes alarming tones - is sadly just common sense.
We just need to keep it wrapped in context.
It is important when we hear economists talking years of disruption to think about how it might feel to live through.
The GFC recovery took years. So too did earthquake recovery for Christchurch.
New Zealand, with strong government support, will get through this lockdown phase and the pandemic itself.
And then - however, tough and long the global economic recovery is - it will be just that, a recovery!
The direction of travel, which is crucial to our mental outlook, eventually moves in a positive direction.
There will be ups and downs. That there are tough times ahead of us is unavoidable.
But there will come a time when optimism is again in ascendancy.
