William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."
New Zealand's great sensitivity to zigs and zags in the global economy makes it the canary in the coal mine of Asian trade.
And at the moment, globalization's early warning system is on life support as COVID-19 kills demand everywhere. The 12.2% annualized growth plunge in the April-June quarter confirmed New Zealand is on its worst trajectory since the Great Depression.
The good news is that officials in Wellington think the worst is over. Thanks to early and firm coronavirus lockdowns, Prime Minister Jacinda Ardern's nation may come out the other side faster than developed-economy peers.
The bad news is: they are wrong, at least in terms of prospects for better economic times ahead.
The problem is the poor quality of the economic air wafting New Zealand's way. With the U.S. slumping amid nearly 7 million COVID-19 infections, Japan and Europe stumbling, and China recovering only modestly, New Zealand export prospects are darkening by the day.
Consider last week's trade data that has China bulls in a whirl. The 9.5% jump in exports in August, the biggest since March 2019, is great news for President Xi Jinping. Yet the 2.1% drop in imports does Ardern's economy no good. That shortfall extended a 1.4% decline in July.
For China's growth to matter, the number of tankers filled with New Zealand dairy products, wood, meat and other goods zooming toward the mainland needs to increase. The same goes for arrivals by Chinese tourists, businesspeople and students.
The 16% drop in New Zealand exports in August has Ardern's team scrambling to fire up the growth engines. With manufacturing output falling at a 13% rate, household consumption down 12% and construction down 26%, that is easier said than done.
It is natural to think New Zealand is due for a snapback. But given the dearth of global demand, it is likely to be more of a dead-cat bounce than a credible stabilization. Either way, recent figures could complicate Ardern's chances of winning a second term in the October 17 election.
On one level, New Zealand exemplifies the unfairness of the COVID-19 era. Few places have had a better pandemic. As of Friday, its official death toll was around 25. This remarkable success has been a boon for Wellington's global standing.
Yet there is reason to worry Ardern's government is reading its own press a bit too much. Case in point: a rather paltry $42 billion of fiscal support to protect jobs, which will need some serious topping up in the weeks ahead. Bigger subsidy efforts also will be needed to help companies retain staff. Much of the second-quarter contraction was in services. Hospitality and accommodation businesses are not coming back anytime soon. Hence the need for additional public support.
Nor does the central bank have much ammunition left. The institution that economist Eric Crampton has taken to calling the "Unreserved Bank of New Zealand" has gone the quantitative easing route. Last month, Governor Adrian Orr expanded its Large Scale Asset Purchase program to as much as $67 billion from an initial $40 billion -- through to at least June 2022.
With the official cash rate at a record-low 0.25%, Orr's team has little conventional latitude to stimulate. The RBNZ is even considering pushing rates negative, a policy the Bank of Japan has been toying with since 2016.
A bigger payoff in the long run would come from diversifying growth engines. China is the destination for roughly 30% of New Zealand's exports. In March, Finance Minister Grant Robertson was a study in understatement when he said "some industries and some areas" are probably been too reliant on China. Robertson said Wellington is crafting plans to "help us diversify our export and import markets."
Since then, though, New Zealand appears to have put more time and energy into what Robertson calls an "NZ Inc. approach to reengaging with China." What New Zealand should be reengaging is a tech startup scene that, at least on paper, should be turning heads globally.
The nation is No. 1, for example, on the World Bank's ease-of-doing-business survey, far outpacing sixth place U.S. and eighth place Britain. And yet New Zealand has not produced a single globally-recognized unicorn, defined as a startup with a $1 billion-plus valuation. Neighboring Australia has at least two.
One can make a valid population-scale argument. Australia has 25 million people to New Zealand's 4.8 million. Yet Australia trails New Zealand by 13 spots on the World Bank's red-tape tables. And with one of the hottest passports anywhere even before COVID-19, New Zealand could be pulling in some of the globe's most innovative minds.
Getting the economy out of the coal mine also requires reducing its reliance on China once and for all. One way to do that, says Keith Woodford of New Zealand's Lincoln University, is to export more to the 10-member Association of the Southeast Asian Nations. Closer ties with Japan cannot hurt.
For now, though, the globe's early warning system is flashing red, suggesting the V-shaped recovery that optimists advertised for the end of 2020, or even 2021, might be more elusive than hoped.