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Beyond clichés
2
Once in a 100 year event
Orthodox policy tools impotent
Three stages of economy
War game
Be responsive to reality.
The recession could be unprecedented
0
50
100
150
200
250
300
1935 1960 1985 2010
Real
GD
P ($
b)
Real GDP • Biggest recession in living memory
• Depth, duration, recovery unknown
• Models & forecasts useless
• Use scenario planning & wargaming
3Source: The NZ Treasury, Statistics NZ, Sense Partners
Forecasting is a fool’s errand
4
Official estimate 15%Unofficial 30%
0
2
4
6
8
10
12
14
16
1921 1931 1941 1951 1961 1971 1981 1991 2001 2011
% o
f lab
our f
orce
Unemployment Rate
Source: Sense Partners analysis of Lattimore & Eaqub (2014), Statistics NZ
A way to think about the economy
5
Indicator Significance in economy
Lockdown Recession Recovery Notes
Consumption 62%Private 43% Spending halved during lockdown.10-20% lower after. Public 19% Should keep spending. Rates increase + relief for those in need.
Investment 24%Private 19% GFC -13%. Public +45% required to offset. Public 5% Will ramp up, ensure strategic fit.
Exports 29%Goods 20% Ok now, global recession will hit trade.Services 9% Int tourism very weak; benefit if Oz deal.
Imports 34%Goods 26% Supply chain disruptions.Services 8% Opportunity to shift some of it to domestic spend.
Jobs 2.66m Wave 1: During lockdown. Wave 2: Business failures post lockdown.Wave 3: Recession proper.
Business 0.55m Firm deaths to rise; births to slump.
Source: Sense Partners
Lockdown An unprepared health system meets a pandemic
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Don’t want waves of reinfections & many deaths
7
0 100 200 300 400
GBR
USA
NZL
AUS
SGP
Total deaths per million (28.04.20)
At this rate: 9,300 additional deaths in 2020
34,000 deathsin 2019
020406080
100120140160180200
Mar-20 Apr-20
7 da
y m
ovin
g av
erag
e
New Covid Cases
AUS GBR SGP USA NZL
Source: Sense Partners analysis of OurWorldInData.org
At this rate: 5,100 additional deaths in 2020
Risk of spread
13%
26%23%
39%
0%
10%
20%
30%
40%
50%
Low Medium High Very High
Shar
e of
jobs
Contact with others
Jobs by ‘Contact with others’
8Source: Sense Partners analysis of Figure.nz visualisation
New ways of working; impact on office precincts; travel
Around 300k jobs
telecommute(Range: 140-580k)
0
500
1,000
1,500
2,000
2,500
3,000
All workers Telecommute
Num
ber e
mpl
oyed
, 000
s
Telecommute workers
9Source: Sense Partners analysis from 2020 Trade Me Employer & Job Hunter Intentions Report, US Bureau of Census, ABS, Statistics NZ, and Chorus data
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20
40
60
80
100
120
140
160
180
Sat, 14-Mar Sat, 28-Mar Sat, 11-Apr Sat, 25-Apr
Inde
x (B
efor
e Co
vid-
19=1
00)
Chorus Internet Data Use
Alert Level 4
Alert Level 3
Economy in deep freeze
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0
20
40
60
80
100
120
140
160
180
Sat, 14-Mar Sat, 28-Mar Sat, 11-Apr Sat, 25-Apr
Inde
x (B
efor
e Co
vid-
19=1
00)
Trade Me Job Ads Listed
Alert Level 4
Alert Level 3
0
20
40
60
80
100
120
140
160
180
Sat, 14-Mar Sat, 28-Mar Sat, 11-Apr Sat, 25-Apr
Inde
x (B
efor
e Co
vid-
19=1
00)
Tom Tom Traffic Congestion
Alert Level 4
Alert Level 3
Source: Sense Partners analysis of Trade Me and Tom Tom
Watch real data
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0
10
20
30
40
50
60
1955 1965 1975 1985 1995 2005 2015
Per
1,00
0 he
ad
Unemployment: Official & Job Seeker Beneficiaries
Unemployed Job Seeker Benefits
Week ending 17.04.20
Source: Sense Partners analysis of Lattimore & Eaqub (2014), Statistics NZ, MSD
Purgatory until vaccine/treatment This could last 12-18 months
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Biggest short term risk? SME survival
13
Source: Sense Partners
Industry/Firm size by # of employees 1-5 6-9 10-19 20-49 50-99 100-199 200+Agriculture, Forestry and FishingMiningManufacturingElectricity, Gas, Water and Waste ServicesConstructionWholesale TradeRetail TradeAccommodation and Food ServicesTransport, Postal and WarehousingInformation Media and TelecommunicationsFinancial and Insurance ServicesRental, Hiring and Real Estate ServicesProfessional, Scientific and Technical ServicesAdministrative and Support ServicesPublic Administration and SafetyEducation and TrainingHealth Care and Social AssistanceArts and Recreation ServicesOther Services
Financial Vulnerability
• Typical recession: New businesses
don’t start, many fail over time
• This recession is different:
• Many businesses may fail at the
same time
• The shock may have a cascading
effect and may be non-linear
A typical recession is not what many fear
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2000 2005 2010 2015 2020
Business Births & Deaths: NZ
Birth Death
14Source: Statistics NZ
Purgatory: 12-18 months
15
Source: Statistics NZ, Sense Partners
0%
5%
10%
1960 1970 1980 1990 2000 2010
Shar
e of
GD
P
Investment Within Public SectorCentral Government Sector
Local Government Sector
0%
5%
10%
15%
20%
1960 1970 1980 1990 2000 2010
Shar
e of
GD
P
Investment by Sector
Private Public
Recession proper
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Ongoing border restrictions
Global recession affecting exports
Supply chains disruptions affecting imports, production & retail
Trade barriers, hoarding.
Feedback loop of job losses.
Policy makers are responding globally
17
Central banks are acting
Near zero interest rates
Asset purchases (quantitative easing, including local debt)
Governments will unleash $ Short term cash support to preserve businesses and jobs
Medium term dealing with those affected & restricted borders
Long term fiscal stimulus to fire economy up.
Not worried about debt, especially with very low interest rates
18Source: Treasury, Statistics NZ, Sense Partners Source: RBNZ, Statistics NZ, Sense Partners
-3
0
3
6
9
12
15
1990 1995 2000 2005 2010 2015%
pa
Interest rate: 90 day bank bill
Nominal real
0%
10%
20%
30%
40%
50%
60%
70%
1972 1982 1992 2002 2012 2022 2032
% o
f GD
P
Net Core Crown Debt
Pre-Covid19 projections
How muchwill crisiscost?
New Normal Will changes stick?
19
Will the world change? Pre Covid Post Covid
Full employment Mass unemployment
Base rate thinking First principles thinking
Physical Digital
Office for work Office for connection, community, ecosystem, makerspaces
Commute + traffic jams Home + family
Last mile Only mile
Globalization Decoupling
Just-in-time Stockpile
Capitalist Socialist
Private Public
Highly paid Essential
Inequality/poverty/climate change SAME
20Source: Sense Partners
New normal
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A sustained period of economic painPrivate sector issue
Public sector austerity would be damaging
Prepare for sped up change Technology adoption
Lower labour intensity
Changed transport patterns
‘Onshoring’ = Consolidation & vertical integration
What does it mean for business?
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Environment Existential for many
Smaller pie
Market share = growth
Strategies Social license
Front page test
Marketing/top of mind
Right size/retain/hire good people
Beyond clichés
23
Once in a 100 year event
Orthodox policy tools impotent
Three stages of economy
War game
Be responsive to reality.
