Coronavirus: Economy knocked back to 2016 levels thanks to lockdowns

Thursday, 13 August 2020

Finance Minister Grant Robertson talks with Stuff political editor Luke Malpass on the pressing issues facing NZ. (First published July 28, 2020.)

Harsh lockdowns have knocked New Zealand’s economy back to 2016 levels, according to new modelling from NZIER, an economics research unit.

The research estimates the economy, measured by GDP, has been knocked back $21 billion, as a result of the lockdowns.

It argues it will take four years for GDP to return to where it was in 2019.

There is a sliver of good news: the research doesn’t take into account the Government’s big-spending response to Covid-19.

With the state pumping tens-of-billions of dollars into the economy as stimulus, it is possible – and even likely – the shock is far smaller and the economy could reach pre-Covid levels more quickly.

* Economic fog lifts a little, but this is not the time to hit the accelerator

* Economy will still be almost 9% under power during level 2, Reserve Bank says

NZIER economist Laëtitia Leroy de Morel said the Government’s massive fiscal response would lessen the cost of Covid-19 to the economy. Her numbers could be used as a baseline to measure the Government’s response against, she said.

“We did the modelling back in June and at that moment the Government was preparing its fiscal policy response. I wanted to set up the base where we have something to compare with,” de Morel said.

Unsurprisingly, tourism is the sector hardest hit. It’s a $41b industry, but tourists also lend a hand to other parts of the New Zealand economy.

De Morel said she was not shocked by that hit, but she was shocked by the magnitude of the effect on other sectors.

“You would expect the supporting sectors would be impacted, but the magnitude was interesting,” she said.

“We were surprised it’s not just tourism, but lot of other sectors are also impacted. The ones that are going down are accommodation food, services, which are directly depended on it.”

Tourists spend $12b on retail, $10b on transport, and $4.7b on food and beverages services while they’re in New Zealand.

A downturn in tourism will hurt these businesses too.

There is some good news, though. New Zealanders are good domestic tourists, spending $24b annually in places outside their residence, calculated as being an area outside a 40-kilometre radius from their home.

The modelling also looked at the cost to different parts of the country of the various levels of lockdown.

The level 4 and 3 lockdowns cost Queenstown-Lakes 16.7 per cent of their GDP, more than double the cost to the Greater Wellington region, which was hit just 6.9 per cent.

Auckland suffered slightly more, losing 7.7 per cent of its GDP.