Waikato Inc picks the shape of its recovery as economists warn of pain to come

An aerial view of Hamilton City and the Waikato River. Photo / Getty Images

Most Waikato businesspeople expect a "wild W"-shaped economic recovery from Covid-19 judging by a poll at a packed economic forum in Hamilton, where economists' predictions put a chill in the air.

Support for the W-shape theory led the electronic poll which ran throughout the Waikato Chamber of Commerce event, crystallising into 60 per cent with the steady message from economists that the recovery was in a honeymoon period, the global economy outlook was grim, and to forget all thoughts of "getting back to normal".

More than 230 business people attended the luncheon event where 27 per cent of those who voted believed the recovery shape would an "elongated U" and 7 per cent went for the "It's all up to our farmers" option. A "sharp V" and "long L" received 2 per cent each.

The Waikato region contributes 10 per cent of New Zealand's GDP and is responsible for 16 per cent of the country's total food production. It hosts about 57,000 businesses.

Many more of their owners wanted to attend than there were seats for, said chamber executive director Don Good. Guest speaker was new National Party leader, Waikato-born Judith Collins, who was booked before she became Opposition leader.

Infometrics senior economist Brad Olsen thought the recovery would be U-shaped.

"There is still more pain to come. Things will get worse. We have taken out key pillars that are not coming back any time soon. Things are alright, but we haven't recovered what we lost in lockdown."

Spending in the Waikato from level 4 lockdown to end June was only 82 per cent of what it was previously, he said. Even within the region there were differences in the recovery pace, with Waipa setting a fair clip but not so Matamata-Piako.

"The global picture is getting far worse and New Zealand can't isolate itself from the rest of the world forever.

"We keep talking about getting back to normal. We're not going back towards normal. We won't get back the $16 billion in international tourism, that's not coming back anytime soon, and we've lost $5.1 billion in international education, and very little's been done at the moment to get that back.

"We need to think about rebuilding better rather than building back. This is not about the Government and economists - if you guys don't make those changes, if you still don't feel confident to hire staff, then things won't get going."

The shortage of skilled labour was a common theme of the event.

"I talk to employers up and down the country. They're finding it hard and the Government's not coming to the table," said Olsen.

"It seems ludicrous that having identified we don't have enough skills, we've never had something like a national skills plan to move forward."

BNZ economist Paul Conway thought Waikato's recovery would be W-shaped.

Waikato Inc. heavyweights like Gallagher Group will bolster the region's economic recovery. Photo / File

"We're not going back to normal. Lockdowns around the world have had a huge impact on the world's economy and the New Zealand economy will have to change with it. Workers and different types of capital need to move out of industries and activities that have been slammed by the virus and are no longer viable. Economists call it creative destruction.

"In the coming months and probably years, we are in for a heap of destruction."

Conway said there was no going back to the old economy.

"And you wouldn't really want to. It hasn't been a strong performer especially in the space of productivity which is the basis of long-run growth. Yes, the New Zealand economy produces lots of jobs but because of that lack of productivity many of those jobs aren't particularly well paid. And even people with jobs can struggle to get by in this country."

Conway said digital tools and data were the infrastructure of knowledge, and knowledge was the key driver of growth in the 21st century.

"Knowledge is the new oil. In New Zealand, the thing about digital is that it expands markets, makes it easier for small, remote businesses to engage internationally."

Waikato Innovation Park nutures technology, a vital tool in the Covid-19 economic recovery. Photo / Supplied

The fundamental reason for New Zealand's poor productivity was the domestic market was very small and most firms were not connected to the global economy, he said. But digital technology worked against these forces. New Zealand had an excellent fast fibre network and lockdown gave Kiwis a crash course in using digital tools.

He also urged businesses to collaborate.

"The reality is that many small firms don't have the resources to innovate so we can get it done by working together."

ASB senior economist Mark Smith also backed a W-shaped recovery for the Waikato. He believed the region would "outperform" because its "Crown jewel" was agriculture.

Agriculture is Waikato's jewel in the economic recovery, say economists. Photo / Mark Mitchell

Dairy prices were holding up and the region was not as exposed to tourism as some others. However it was still taking a $600m hit from the loss of international visitors and was down 6000 international students.

Smith also urged collaboration, and for the region to support local business, particularly those in agriculture sector. With interest rates low his advice was to borrow "for a purpose ... for a better future".

Westpac industrial economist Paul Clark picked a hybrid-shaped recovery for the Waikato.

"Somewhere between a V and a W, not a full W. We've come from a long leg going down and seen a big bounce up ... and we see it going sideways. The Waikato should follow a similar path with some differences."

Dairying and forestry should support its recovery.

Clark said Covid-19 would leave "some big scars" on the national economy.

He believed manufacturing could struggle, and like the other economists, said the recent, much better than expected, unemployment figures were a nonsense.

He expected Waikato unemployment to rise as the wage subsidy ended.

House prices would "go south" with the unemployment rise.

Westpac was picking an upsurge in the housing market in 2022 due to low interest rates, which could go negative that year, he said.