Read the Beforeitsnews.com story here. Advertise at Before It's News here.
Profile image
By Blessed Economist
Contributor profile | More stories
Story Views
Now:
Last hour:
Last 24 hours:
Total:

Treasury Estimates

% of readers think this story is Fact. Add your two cents.


The NZ Treasury released its estimates today for the effects on the economy of the Covid19 virus and associated shutdown.

The scenarios considered vary depending on how long the country is kept in each level of the shutdown. I thought scenario 1 looked most realistic; it assumes that Level 4 will last a month, then Level 3 for a month followed by Level 1 or 2 for ten months. The worst case is scenario 4, which assumes Level 4 for three months and Level 3 for 3 months. That does not seem plausible, but I presume it was put in there to make the others seem more acceptable.

Two figures stood out to me. First, if the best scenario applies, quarterly real GDP drops from 64 billion dollars in the March 2020 quarter to 54 billion dollars in the September quarter, when the economy has had quite a few months to recover. That is a drop of 14 percent, which is a huge hit on the economy. It takes out quite a few years’ worth of economic growth at a time when the population has grown rapidly, so the effect on real GDP per capita will be even worse.

The Treasury notes that this number is just an estimate, but I would have preferred that they gave more information about the assumptions on it was based, and an indication of the plausible range for their estimates. It makes a big difference, whether the estimated decline between March and September is between 12 and 16 percent, or whether it is between 9 and 20 percent.

But you cannot eat GDP, so these figures probably do not mean much to many people. However, the other figure that I noted really brings it home.

Under their best-case scenario, the Treasury estimates that unemployment will be 13 percent of the workforce in the September quarter 2020, well after the finish of the lockdown. The New Zealand workforce consists of about 1.5 million people, so 13 percent unemployment means 195,000 people without work. That is a huge amount of pain. Many of those who lose their jobs will be able to collect unemployment benefits, but many others will be the partner of someone who is working, so they will not qualify for a benefit.

My initial response to the estimates is that the Treasury is overconfident about how quickly the economy will recover. I will be interested to see what other economists say about this. It depends on how much account the Treasury has taken of the effects of business closures rippling through the economy.

Treasury seems to be assuming that the world economy will only decline by about 3 percent in the best case, and 6 percent in the worst case. That also seems to be a little optimistic.

  • The Chinese economy was already slowing sharply before the virus struck, and it is uncertain how quickly it will recover.

  • The US financial sector is very shaky. The collapse in the value of shares and bonds means that many debtors have had to stump more for collateral for their loans. It is not clear that all will be able to do it. Many large corporates have burnt up their cash reserves and are finding it difficult to find credit. There are huge risks around derivatives linked to the price of oil. The Federal Reserve is trying to shore the financial system up with more credit, but it is still not clear that they will be successful.

  • As they recover, the nations of the world are like to pull back from dependence on international trade and try to be more self-sufficient. That will increase the cost of producing everything that people need and make life more difficult for exporting nations.

I suspect that as we go out of the shutdown, the New Zealand economy will face stronger headwinds than the Treasury is assuming. The world is not just dealing with a health crisis; it is also facing a financial crisis.



Source: http://getrad2.blogspot.com/2020/04/treasury-estimates.html


Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!


Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST


Order by Phone at 888-809-8385 or online at https://www.herbanomic.com M - F 9am to 5pm EST


Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)
Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen! 
Nascent Iodine - Promotes detoxification, mental focus and thyroid health.
Smart Meter Cover -  Reduces Smart Meter radiation by 96%!  (See Video)

Immusist Beverage Concentrate - Proprietary blend, formulated to reduce inflammation while hydrating and oxygenating the cells.

Report abuse
Loading...

    Comments

    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    MOST RECENT
    Load more ...

    SignUp

    Login

    Newsletter

    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.