In a year of bad news, the past few weeks were a welcome exception.
Pfizer’s announcement of a potentially effective Covid-19 vaccine opens a path back to normal life. Joe Biden’s election could herald a calmer and more constructive global trade environment, not least through reviving the WTO.
Meanwhile, a Treasury update shows public finances, though still strained, are much better than initially feared. Tax revenue was higher, expenses were lower and the deficit was smaller, too.
The labour market is also looking relatively healthy. The latest number of weekly filled jobs was higher than at the beginning of the year or in 2019.
Both business and consumer confidence are still climbing steadily. Though ANZ’s business confidence index remains in negative territory, it has jumped 50 points since March – surpassing even the February confidence level.
Car sales are also rebounding from the lows of the lockdown months. Luxury brands have done especially well in 2020 – suggesting consumers are diverting their holiday budgets to new cars. We hear similar stories from the home renovation sector.
Looking to 2021, there are reasons to be cautiously optimistic about the global environment. Brexit, for example, will finally be sorted. The UK may get its deal with the EU but crucially, the uncertainty will disappear.
Parts of the world could even experience a sort of catch-up boom next year. Consumers, once released from the depths of pandemic restrictions, could reward themselves for their sacrifices.
However, many risks, question marks and clouds remain on the horizon. The new Covid outbreak in Auckland is a reminder that the pandemic is not over. New Zealand still faces a substantial surge in public debt which must eventually be repaid. But overall, the economy is showing early signs of recovery.
Should this recovery happen, it will have implications for both fiscal and monetary policy.
On the fiscal side, the better-than-expected circumstances will lead to demands for more spending since there appears more room for it. This is not a good idea since the situation remains bad enough, even if it is not catastrophic.
On the monetary side, a stronger economy will weaken the case for negative interest rates. Why push up house prices further when an upswing is already underway?
We can only hope for more good news. And then we must hope that the Government and the Reserve Bank draw the right conclusions from them.