Jacinda Ardern is paying the price for her hermit zero-Covid economy
New Zealand is crashing into a hard recession
he was determined to protect the country’s health. She locked the doors to keep the virus at bay. And, although it might be tough for a while, the country and its economy would emerge in far stronger shape than most of its rivals.
At the height of the Covid-19 pandemic, New Zealand's Prime Minister Jacinda Ardern was widely praised for her rational, science-based approach to the virus. She was dealing with it far better than anyone else, we were told again and again - and it was a model to be emulated.
Now it turns out that the bill is falling due. New Zealand is crashing into a hard recession.
Business confidence is plummeting. House prices are in freefall. And the central bank is raising interest rates at a faster pace than any other in the developed world.
In reality - surprise, surprise - you can’t turn a country into a sealed-off hermit kingdom without doing long-term damage to its economy.
Whether
zero-Covid policies were right or wrong is something we will be debating for years. But there is no question that the economic reckoning is now here - and the price is turning out to be a very high one.
When Covid-19 was ripping out across the world, Jacinda Ardern was right at the front of the efforts to control it – and then eradicate it completely.
The country was effectively sealed off, with strict quarantines for anyone arriving in the country, extensive testing, and tough local lockdowns on the rare occasions the virus did escape.
Indeed, she was one of a handful of female leaders – Germany’s Angela Merkel, if anyone remembers who she was, was another – held up as proof that women were handling the pandemic far better than their male counterparts.
On one level, of course, it worked, even though it helps if you are a small-ish island a long way from anywhere. New Zealand had far lower rates of infection, and inevitably deaths as well, and kept the virus under control until the vaccines were available.
The trouble is, the economic cost is now starting to emerge. What has for the last 20 years been a very successful Pacific nation, with growth rates that were the envy of the rest of the developed world, is now crashing hard into a recession.
The latest data out of New Zealand is simply dreadful. Last week, its central bank forecast that the economy would go into a steep downturn next year after survey results showed business confidence was slumping at alarming rates.
House prices are falling at the steepest rate for 13 years, and that may well accelerate. Inflation is touching 7pc, a 30-year high. The central bank is pushing interest rates higher more aggressively than anywhere else in the developed world, with a half point increase in May marking the fifth straight rise, along with signals that there are a lot more to come before it is finished.
Its neighbour Australia might have had lockdowns that were just as strict, but at least Canberra now has booming commodity exports - Australia is stepping into a lot of the markets that Ukraine has had to abandon - to help it through 2022. New Zealand is facing a global slowdown and an inflationary storm on its own.
New Zealand is experiencing the after-shocks of Ardern’s fanatical pursuit of zero-Covid. You can’t seal off an economy, close down its tourism sector, and spend huge sums of money on support for all the businesses that have been closed, without expecting the economy to suffer. That is now becoming painfully clear.
Tourism was the country’s largest single export, for example, ahead of dairy products, but it was crushed by the quarantine rules and is expected to take another three years to recover to pre-Covid levels. A third of the workforce was laid off during the pandemic, and are yet to be fully re-hired.
Despite its fantastic scenery, television and film production companies started to abandon the country, most notably
when Amazon cancelled filming there for its Lord of the Rings series, the most expensive TV show in history.
Add it all up, and confidence in a once booming economy has been shattered. The Prime Minister is already far behind in the polls and now looks almost certain to be defeated in the next general election - and the economic data is certainly not going to come to her rescue.
We are still assessing Covid lockdowns and trying to work out whether they were the right or wrong decision.
The benefits were apparent right away. Fewer people died. Life was slightly more normal between the periodic local lockdowns.
But the costs are only starting to emerge. We have still to tabulate the impact on mental health, especially among young people. We still need to work out what will happen to all the people who lost their jobs or the companies they had built up over many years.
And most of all, we are only just starting to see the impact on the economy, with higher inflation, more debt, and chaotic supply chains.
Whether it was all worth it is of course up to individuals to decide. The important point is this: we need to keep track of the costs as they become clear – if we don't, we will never know whether it was the right decision or not.
Ardern was one of the leading evangelists of zero-Covid. Her country was the laboratory for closed down borders, strict quarantines, and tough lockdowns. No one denies for a moment that some lives were saved. And yet as her economy crashes, we will see the cost of that. And right now it looks as if the price will be a very high one.
