NZ not likely to suffer as much economic pain during this lockdown
Wednesday, 8 September 2021
New Zealand is likely to come out of the current lockdown in better shape than last year’s level 4 as we are more resilient and better prepared this time around but it will still hurt, economists say.
The country was moved quickly into level 4 lockdown three weeks ago after the discovery of the highly infectious Covid-19 Delta strain in Auckland.
And while household spending has dropped, it isn’t as bad as last time, suggesting the economic hit won’t be as severe.
“We haven’t closed our wallets in the same way,” says Bank of New Zealand head of research Stephen Toplis. “We feel more comfortable.”
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When Covid-19 first arrived in New Zealand last year, we didn’t know how long it was going to last or when things might improve.
“We were operating in a complete vacuum,” Toplis says. “There was a massive fear factor.”
Having weathered that storm with the support of the Government wage subsidy, got rid of the virus fairly quickly through lockdowns, adapted to deliver more online, and with vaccines now available, level 4 is a better place to be this time around.
ASB chief economist Nick Tuffley notes that we are moving more quickly through the alert level changes this time around, with most of the country outside of Auckland moving to alert level 3 last week and to alert level 2 from Wednesday.
He estimates about 71 per cent of normal activity could happen when the whole country is in level 4. That increases to about 83 per cent when we move to a split level 4 and level 3, and about 88 per cent in split level 4 and level 2.
That means from Wednesday we effectively halved the amount of disruption from the current lockdown.
However, the economy will still be hurt.
“We are still expecting a fairly decent whack to GDP over the quarter,” Tuffley says. “We did lock down a fair chunk of the country for a good period of time.”
Last year GDP fell 11 per cent in the second quarter as a result of lockdowns, but rebounded 14 per cent in the third quarter, the strongest quarterly growth figure on record.
Economists are expecting a similar pattern this time around, although not of the same magnitude.
ASB is expecting GDP to contract 6.5 per cent this quarter, and rebound 7.8 per cent next quarter assuming the country successfully eliminates Delta. It expects the economy to grow 3.9 per cent this year.
“We are still seeing the economy expanding overall over the year, but we probably have lost a little bit of growth compared to what we otherwise would have anticipated if we hadn’t had this lockdown,” Tuffley says.
“You do get a lot of pent-up activity that happens after lockdown, but you don’t tend to completely make up for everything.”
For example, you are not going to have a month’s worth of daily takeaway coffees in the first week when you come out of lockdown to make up for those you missed.
“There will be things like that that we still leave behind, but we look like we will come out of it still in a pretty resilient position,” he says.
For some parts of the economy, the latest lockdown will be intensifying pain that has been there on and off for the last 18 months, particularly hospitality and tourism.
There are more restrictions on hospitality businesses under stricter level 2 rules, so they will be more adversely impacted than last time.
While that’s an extra burden, it’s likely to be offset by the fact that businesses are now better at adapting to lockdowns, says Jarden economist John Carran.
“Last year, businesses were scrambling around, working out how they could do it,” he says. “Businesses are now more adept at operating under these lockdown conditions.”
Level 2 is also not as simple this time because Auckland remains in level 4.
The curtailing of domestic travel from Auckland puts extra pressure on tourism destinations like Queenstown which are already hurting due to border closures.
At the opposite end of the spectrum, the construction sector is struggling to keep up with demand and supply shortages during lockdown aren’t helping.
“The sector is so capacity constrained that you can’t say we will just work a little harder for the next couple of months and we will catch up to where we would have been,” Toplis says. “That’s just not possible. They are working flat out anyway.”
Tuffley is hopeful that vaccines will minimise future disruptions.
“For the future hopefully the increasing uptake of vaccines will give us another tool that we can rely on to stem any community outbreaks, so we don’t have to resort to doing lockdowns,” he says.
“The Government ends up spending an awful lot of our future income propping things up so all these lockdowns do leave quite a long-term legacy.”