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  • rmacculloch

Divided Against Covid: Get Ready for Policy Uncertainty to Cause a Slow Down in Kiwi Economic Growth

This past weekend CNN ran as its top headline, "Australia beat the world on shutting out Covid. Now it's bitterly divided on how to reopen". The article mentions NZ. We now have survey evidence showing that the CNN headline does accurately also describe a sharp divide amongst Kiwis. A recent Herald-Kantar Poll shows 52% of us either already support learning "to live with Covid", or only continuing with elimination "until more than 70% of the population is vaccinated", which is just months away. Whereas 46% wish to continue unconditionally with elimination. (By the way, 2% of people "Don't Know", which includes me!) The Herald seems to have got strangely confused by what its own Poll is telling us. It ran a column saying the results reveal Kiwis are "united" (!?) Which the Health Minister liked.

On the basis of this now striking divide in NZ, right down the middle, regards our elimination policy, as evidenced by the above survey, I'm predicting the government won't know which way to turn. Why? Since it's desperate to follow public opinion to maximize support. But surveys are giving little direction on this matter due to the 50-50 split.

Does this matter? According to some eminent economists from Stanford & Chicago, it matters a lot (see below). They argue that policy uncertainty is debilitating: "Using firm-level data, we find policy uncertainty is associated with greater stock price volatility & reduced investment & employment in policy-sensitive sectors like defense, healthcare, finance & infrastructure construction. At the macro level, increases in policy uncertainty foreshadow declines in investment, output & employment in the US and for 12 (other) major economies".

If this study is correct, then Kiwis better get ready for a tough next few years, at least economically speaking.



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