TODAY |

Global economy suffering a 'cardiac arrest' due to coronavirus

Newsroom Pro Editor Bernard Hickey is warning that New Zealand's economy, along with the rest of the world, is suffering significantly as a result of coronavirus. 

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Newsroom Pro editor Bernard Hickey says large parts of the global economy may not operate for years. Source: Breakfast

Mr Hickey says the parts of the economy, such as the tourism and hospitality sectors which rely on people gathering, may be closed for some time. 

"We need to think about, right now, what the world would look like if there was a depression and New Zealand's borders were closed and large parts of the economy weren't operating for potentially up to two years." 

He says New Zealand needs to start weighing up the possibility of options like a 'universal basic income' (UBI) in order to keep Kiwis and local businesses afloat. 

A UBI is already in place in New Zealand in the form of super annuation for people over the age of 65, but Mr Hickey thinks this should be rolled out for everyone. 

"Every New Zealander, right from the age of naught, gets the same amount of income as essentially super annuation ... it's a very simple way to get people going and to give people reassurance because we have to spend the next couple decades recovering from this." 

While he admits the idea would be expensive in 'normal times,' similar plans are already being put in to action in countries around the world. 

The Government would be 'loaning money from itself' to allow the Reserve Bank to print more money according to Hickey, a similar process to overseas.

"The European Bank did it last night, essentially to the tune of 50 billion euros, the Bank of England early this morning did it to the tune of $250 billion pounds ... and Australia just announced something very similar yesterday." 

He says when an economy experiences a deflationary shock like what has been caused by the coronavirus pandemic, you need to pump cash back in to the body of the economy. 

In simpler terms, Mr Hickey likens the effect on the global economy as if it had "a cardiac arrest". 

"In a way, the economy has had a cardiac arrest ... for parts of the economy that requires people to travel or gather together, that has stopped, the blood has stopped pumping in its veins." 

He says New Zealanders need to prepare for the effects on the economy to mirror the impacts of the Great Depression in the 1930's and says introducing an UBI would help to reassure the public. 

Mr Hickey believes the global economy will take the next few decades to recover.