You can reduce your chances of being infected by the new coronavirus, but you’ll need more than good luck to escape its economic impact.
He says she sprang into action and started looking through the pantry. “No,” I said, “not food! We must buy a new big-screen smart TV and computer, upgrade the broadband and sign up to Sky Sport.”
In the face of the latest health scare, Scott has retained his sense of humour – and his marriage – but all over the country, many others are taking it much more seriously.
At Thorndon Pharmacy in central Wellington, a stone’s throw from the Ministry of Health, pharmacist Arthur Chan could do a vigorous trade in face masks and hand sanitiser – if only he could get the stock.
“We’re supplied sporadically,” he says, “and as soon as they come in, they sell.” He has heard of profiteering occurring, but his pharmacy is selling the items at regular prices.
He is aware, as his customers surely would be too, that evidence for the efficacy of face masks is at best weak. However, some of his customers want supplies because they intend to travel overseas, and Chan thinks they could be beneficial in preventing the spread of droplets from a person who may already be infected with Sars-CoV-2, the new strain of coronavirus that has sparked a frenzy of concern around the world.
Current advice is that washing your hands thoroughly with soap and warm water is as good as hand sanitiser. Nevertheless, at Thorndon Pharmacy as at many pharmacies, both masks and hand sanitiser are highly sought after. The swoop on Auckland supermarkets after New Zealand’s first case of Covid-19 was confirmed in the city also saw toilet paper, tissues, bottled water and non-perishable foods bought in bulk, suggesting some shoppers are anticipating long periods of isolation – voluntary or otherwise.
“If they were home, they could just order online,” notes Chan.
The need to “do something”
But the need to actively “do something” in the face of fear is no surprise to Victoria University head of psychology and Listener columnist Professor Marc Wilson.
Some people, Wilson says, will react to a threat like Covid-19 by downplaying the risk. “Another way is to reduce that fear by doing something in order to gain a feeling of control. That might be buying up all the toilet paper in Hawai‘i or rocking up to church for the first time in ages. When wars break out, more people go to church, because praying makes some of us feel like we’re interceding.”
In any year, 10-20% of New Zealand’s population contract influenza and, on average, 500 people die from it, yet it attracts little media attention. By contrast, eight people have Covid-19 in New Zealand and there have been no fatalities here, yet the coverage of the illness’ global progression has been inescapable.
Partly, that is because of frequent warnings that one day a virus will start the kind of pandemic that could cut a swathe through the world’s population. Nobel prize-winner Joshua Lederberg once warned that “the survival of humanity is not preordained”. The single biggest threat to our continued dominance of the planet, said Lederberg, an authority on emerging diseases, “is the virus”.
With increasing numbers of elderly in the world’s population, medical experts warn that pandemics may become more lethal. Although overseas experience shows that Covid-19 has a higher mortality rate than the flu, the reaction – including panic-buying in supermarkets, a sell-off in financial markets, banning travellers coming from some areas and people “self-isolating” when there is no official advice for them to do so – is disproportionate to the current risk.
But the nature of the virus could change, and anyway, risk is not something that people are good at assessing, Wilson says. “Anything that is a novel threat, like Covid-19 … is more potent.”
Once a case of the coronavirus disease was confirmed in New Zealand, the risk of community transmission became possible. “This means anyone could have it, and that in itself is psychologically disturbing,” Wilson says.
“We’re pretty hopeless at working out the risks of bad things happening to us. It has been pointed out that the mortality rate of the ‘common’ flu is about one in 100, and it is possible that Covid-19 isn’t much higher, but how much higher is ‘not much higher’?
“Additionally, research on risk perception shows that people who are ill or have experienced long-term health issues are more likely to worry and perceive risks as higher. And they’re not necessarily wrong.”
He also thinks that for some time, some people have been preparing themselves for the types of post-apocalyptic scenarios that have become common themes in popular fiction and films.
“We’re living at a time where it’s not just the news media that’s giving us what we want to know about, but that is happening in the broader context of an awful lot of hyper-realistic end-times, post-apocalyptic fiction, such as The Handmaid’s Tale, The Leftovers, The Walking Dead and spin-offs that are among the most watched things on TV over the past 10 years. Those are alongside films or series based on real events, such as Chernobyl and, most pertinently, 2019’s The Hot Zone. Essentially, we’ve been priming ourselves to get the screaming willies over something like Covid-19 – and here it is.”
Separating fact from fiction and balancing risk and fear may be too late to save the local and global economy from a downturn that we have scared ourselves into creating.
Around the world, markets, companies and economic forecasts are reeling. The OECD has halved global growth forecasts to a meagre 1.5% and warned that some countries, including Japan and some in the Eurozone, could tip into recession. Emergency rate cuts by central banks, including the Federal Reserve in the US and the Reserve Bank of Australia, have not calmed fears about the potential severity of the predicted downturn.
Economists in New Zealand expect the Reserve Bank here to also cut rates, though with the official cash rate already at only 1%, the bank will have little room to make further adjustments if any downturn is prolonged.
All markets are down, with companies particularly exposed to the virus, including airlines, being hard hit. Wall Street last week saw its biggest fall since the 2008 financial crisis – though, like the New Zealand stock market, it had been trading at record highs immediately before the slump.
The G7 Group has called for global co-operation, and there are appeals for China and the US to end their trade war. While urging caution with its figures, Statistics New Zealand says the cumulative total value of our exports to China alone in the past four weeks are worth about $93 million less than for the same period in 2019.
As the downturn is reflected in share prices, New Zealanders are watching their KiwiSaver and other retirement and investment accounts fall – which may be the first time that this has happened for some younger savers. It is particularly worrying for those hoping to use their KiwiSaver balances for a house deposit and those close to retirement who were intending to cash out of their schemes.
“Drought and coronavirus are going to deal the New Zealand economy a sharp blow over the first half of 2020,” Westpac economists warned in their weekly update at the beginning of March.
“There is now a greater probability of supply-chain disruptions causing New Zealand firms to run out of the materials they need to operate,” Westpac noted, adding that its updated forecasts incorporated assumptions of more travel bans and disruption to economic activity. “We are still assuming that efforts to contain the virus will eventually be successful, but only at a severe economic cost.”
All the major banks match Westpac’s concern. “The outbreak of the Covid-19 coronavirus [disease] has turned what was looking to be a strong economic outlook for 2020 on its head,” reports ASB Bank senior economist Mark Smith. “The situation remains volatile and it is difficult to see how things will pan out.
“We tend to be overly cautious around new and misunderstood risks, which is what this virus is,” Smith says. “Panic does no one any good. However, the situation is evolving quickly. It is prudent for firms, households and policymakers to be prepared. This means having a plan B or even a plan C ready if need be.”
Potential job losses
One of the first to warn of possible job losses was Victoria University, where travel restrictions have prevented about 500 students from China enrolling, angering the vice-chancellor who says the New Zealand Government has overreacted. The university has put in place a hiring freeze and says lay-offs are possible.
A director of New Zealand investment and advisory group Jarden, John Norling, says “second round effects” of the Chinese shutdowns are what’s worrying for New Zealanders, aside from the virus itself.
“The risk is that people get laid off, those companies can’t pay their bills and the whole thing feeds on itself. That’s where the real concern is – in the flow-on effects and creation of a feedback loop.”
An interest rate cut now looks likely, but Norling says that is a blunt instrument and it would also affect confidence. “I’d have thought specific policies were required for the industries affected, like tourism, forestry, and universities. You could take a laissez-faire view, but when universities are saying they’ll have a hiring freeze and then could let people go, those things impact how everybody feels, and the affected people cut their own spending.”
In the US, Norling says, a rise in unemployment of about 0.3% indicates a recession is coming. “If you’re going to avoid a recession, the Government has to do something.”
Prime Minister Jacinda Ardern says the Government is not expecting the worst to happen but is planning for it just in case.
Some businesses are already requesting support on such issues as cash flow, “and even the ability to pay taxes”. The Cabinet has set aside an additional $4 million for the Regional Business Partners programme, which will pay for additional local advisers “on specific issues, whether it’s payroll issues, whether it’s directly supporting them, liaising with IRD around provisional taxation or GST, or employment services”.
In addition, the Government is promising 16 “ready response teams” that would help people who lose their jobs find new ones. “We are, for instance, as we speak, working actively on a wilding pine project as an option for those who currently work in the forestry industry,” Ardern said at her weekly post-Cabinet press conference.
As for individuals, Norling says a sharp market drop like we have just seen tests people’s risk appetite. For the oldest New Zealanders, he thinks, the main concern will simply be not getting the flu or Covid-19, because old people and those whose health is already compromised are at greater risk. “It’s a straight-out health issue.”
For people who are employed but with no investments, their main concern is retaining their jobs. Those who are middle-aged and have investments are most likely to be concerned about what’s happening to their savings, Norling says.
If people have more than 20 years left to work before retirement and have a greater tolerance for risk, they probably will do nothing. If they have a diversified portfolio that is well managed, they would have been selling shares as they went up in value to keep a proportion of their investments in fixed-interest securities.
Now, as shares fall in value, he says investors should be thinking of selling some of those securities and re-investing in shares to keep the proportions of their portfolios balanced.
The people who thought they were big risk-takers and have now discovered they are not, are in the most difficult situation, he says. “It might be a case that they do need to take stock and make a careful reduction of risk after the horse has bolted.”
Other investors will simply need “hand holding” to improve their understanding of market volatility and to be assured that they still have time on their side for their position to recover.
Though no one knows how either the virus or the markets will behave in the coming weeks, banks expect economic activity to pick up again when the Covid-19 threat passes.
In the meantime, for those who are acutely worried, Wilson suggests not looking. “People who watch a lot of news coverage of anything distressing risk developing stress reactions that can be stronger than those in people who have been directly affected.
“People in the US who watched wall-to-wall 9/11 coverage ended up as stressed, depressed and anxious as people at ground zero. My advice to those people is to limit your doses of Covid-19 coverage.”
This is an updated version of an article first published in the March 14, 2020 issue of the New Zealand Listener.