Liam Dann: Precedented times – life in 2021 just feels like one giant caveat


There must be a limit to how much anyone can write about coping with uncertainty.

I’m not certain about that, though.

I thought there was a limit to how much I could write about interest rates and I’ve well and truly busted through that this year.

It’s a challenge, though. Covid uncertainty has rendered economic forecasting almost redundant.

As ANZ chief economist Sharon Zollner said last week: “Forecasting in the Covid era is clearly a mug’s game.”

It feels as if life in 2021 is just one giant caveat.

But while we can’t look forward with much confidence, we can at least look back.

What we can say is these are no longer unprecedented times – at least when it comes to the economics.

These are precedented times.

Much has been learned about how our economy behaves in a pandemic and under various lockdown conditions.

Most of it has been surprisingly positive.

And so, I think, in what has been an otherwise disheartening sort week, the economics of the situation provide some sort of life-raft of hope.

There are a lot of ways to slice and dice the country’s fiscal position.

But the bottom line is that last year, at the height of pandemic panic, the Reserve Bank put in place the capacity to buy up to $100 billion worth of government bonds.

They called a halt on that programme having purchased roughly $53.6b.

The Government still has several billion dollars available from that pool of funding.

It seems unlikely that we’ll need to turn the printing presses back on and resume quantitative easing.

But the point is, even if we imagine a worst-case scenario from Covid point of view, this country still has plenty of financial capacity left.

Following Wednesday’s Monetary Policy Statement, Reserve Bank Governor Adrian Orr described himself as feeling a lot better about the situation than he did when the pandemic first hit.

“I would have to say you are talking to a very different Adrian today than in March, April last year,” he said, in an interview on Friday.

“The medical difference is that this Delta variant is far more contagious but in terms of the economic management it is far better understood.”

When the Reserve Bank first responded to Covid – slashing rates by 75 basis points in March 2020 – there were no vaccinations, no one knew how financial markets would cope, we didn’t know how the economy would function under lockdown and, initially, we didn’t even have the fiscal support in place.

Last week, the Reserve Bank had enough confidence to stay hawkish on inflation.

That means it still sees the trend being one of higher interest rates because the balance of risks for the economy still lies with it running too hot.

It doesn’t see the economy slamming into recession any time soon.

But it proceeds on the basis that there is capacity to deal with it if it does.

“Our core path remains the same and it remains the same under quite a few conditions,” Orr said.

What’s important is to look at GDP across the whole of last year rather than quarter to quarter.

What it shows is that much of the lost economic output in a lockdown is just displaced and delayed.

The rebound – albeit underpinned by fiscal support – was much stronger than we all expected.

That’s not just here. Around the world, the Covid economy has outperformed early expectations.

But, said Orr: “I see the New Zealand economic situation as being as good as it gets across the OECD.

“Now we’re sitting here with a very well understood suite of instruments, a strong balance sheet. We will be as always watching for market volatility or dysfunctionality. But there’s no signs of it at all. I’m certainly not anticipating any.”

The great thing about Orr’s confidence is that we don’t have to take his word for it.

We don’t have to take Finance Minister Grant Robertson’s either.

Actually, we can ignore all the local economists and even the international economists at places like Fitch Solutions (still tipping rate hikes this year).

We can instead look to markets.

Our dollar is one of the most highly traded currencies in the world. Our stockmarket is not so heavily traded, but it is largely owned and buoyed by foreign capital.

Our borders might be closed but our economy is not.

The world’s currency, bond and equity traders are not prone to sentimentality.

They don’t care about the internal politics of this country and they’ll vote with their feet if things turn bad.

A note on Sir Michael Cullen

While much has been written about Sir Michael, I’d like to briefly acknowledge what a great privilege it was for me to have talked to him over the years.

His legacy is huge. We should think of him when we check our KiwiSaver balances.

We should remember him when we see the latest total in the NZ Super Fund – often dubbed the Cullen Fund ($58b at last look).

More recently I engaged with him in regards to the Tax Working Group, which provided the blueprint for a comprehensive Capital Gains Tax – although that will sadly never be.

Earlier this year I had a long talk with him for my podcast Money Talks. We chatted about childhood, politics career, money, life and death.

He was smart, funny and kind.

He was interested and passionate about New Zealand to the end. We’ll miss him.

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