Keeping Auckland at alert level 3 will cost economy $450 million a week, economists say

Thursday, 13 August 2020

Around 250,000​ Auckland workers are unable to operate under alert level 3, and between $60 million and $69m​ of retail spending will be lost in the run-up to the weekend, Infometrics says.

Infometrics senior economist Brad Olsen said the impact on Aucklanders of the return to level 3 would fall unevenly on households and businesses, but was also having a chilling effect on economic activity in other parts of the country.

Olsen said Wellington’s main shopping street, Lambton Quay, was unusually quiet on Wednesday, and he urged people to “support businesses and to keep money ticking over to help keep people in work”.

ASB economists have estimated the weekly cost of the current alert level 3 setting in Auckland, and level 2 for the rest of the country, would cost roughly $450m​ a week, providing the settings do not remain in place for long.

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“Hopefully, the economic hit from this latest outbreak will prove short-lived, but the short answer at present is that we really don’t know,” ASB senior economist Mark Smith​ said.

But rough estimates on the economic hit pointed to a 0.15 to 0.5​ per cent reduction to GDP for every week Auckland remained at level 3, but this could get larger if the outbreak lasted longer, he said.

“Our rough estimates suggest an approximate $450m​ (0.2 per cent of annual GDP) impact per week under the higher alert levels,” Smith said.

“However, the economic costs will mount if the outbreak drags on for longer and spreads throughout the country.”

Auckland was the epicentre of the outbreak, which was identified when four members of a South Auckland family tested positive for Covid-19, and the region accounted for roughly one third of national economic activity, employment and population.

The threat of more outbreaks, even if this one was contained, would remain until a vaccine was found, Smith said.

“Firms and households will need to remain vigilant and resilient,” he said.

A move to a nationwide level 3 would cut roughly 0.3​ per cent off the country’s annual GDP. Should the country move to alert level 4, every week of lockdown would reduce annual GDP by 0.5​ per cent, ASB estimated.

Olsen said the impact of the Auckland alert level 3 would fall unevenly on businesses and households, with those most economically exposed to industries like tourism, transport and hospitality at most risk of income drops.

The impact on local economies around the country from a move back into higher alert levels depended on the make-up of its industries, Olsen said.

In Auckland, around 28​ per cent of the workforce would not be able to operate, he said.

Olsen said he experienced a sinking feeling when it was announced that Auckland would be moved to level 3, and hoped the move would be short-lived.