Lockdown 2.0 having heavier impact on businesses, researchers say

Wednesday, 19 August 2020

Dr Ashley Bloomfield talks about how officials are trying to find the mystery source of the Rydges Covid-19 case.

New Zealand businesses entered higher alert levels this month in a much more vulnerable position than in March, economists at Infometrics say.

Auckland is half-way through a two-week period at level 3 and the rest of the country is in level 2 after the discovery of new community transmission of Covid-19.

Infometrics has released its latest quarterly economic monitor, which shows a substantial hit nationwide as a result of the efforts to eliminate the virus this year.

Senior economist Brad Olsen said businesses around the country had reported that, even in level 2, the restriction was affecting them more than they had last time the country was at level 2. “While level 2 on paper doesn’t have the same restrictions, people are operating at level 2.5.”

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Much of the support that had been made available had already been used, he said, and more job losses and business failures were likely.

Auckland is at level 3 while the rest of the country is at level 2.

But Covid-19 was likely to be in circulation for some time to come and businesses would need to find ways to work through different levels of restrictions, he said.

“Figuring out different ways of operating become important.”

The blow from the restrictions introduced in March and April had not been felt equally, he said.

“The immediate economic ramifications vary by region and the end results are clear to see – economic activity has fallen in all regions, nearly 50,000 Kiwis have lost their jobs, businesses have struggled to cope with lower earnings, and incomes were reduced,” Olsen said.

“Infometrics currently expects that economic activity was down 12.6 per cent per annum in the June 2020 quarter, as the economy endured a dramatic shift in focus, from life support at level 4 to an adrenaline rush at level 1 over the three-month period.”

Brad Olsen: ‘We need to be realistic, it’s not going to be the same… we have lost $17 billion in international tourism.’

Those for which tourism was a larger proportion of the economy were most affected. Otago felt the biggest blow, with economic activity down 15.6 per cent.

The Manawatū-Whanganui and Gisborne regions weathered the storm as well as could be expected, with economic activity falling by less than 9 per cent.

“The structure of local economies is key to deciphering how the economic hit will reverberate throughout the New Zealand economy,” Olsen said.

“Those economies with a strong tourism focus have seen a deeper hit to activity, and those with a greater economic focus on international tourism will feel the prolonged effects of the downturn.

“Those local economies with a strong primary sector, particularly in food production, have held up better as New Zealand’s exports continue to feed the world. Combining these various effects has resulted in a scattered regional economic picture.”

After lockdowns lifted, Northland and the West Coast had the biggest rebound in spending. But Olsen said while spending had bounced back nationwide, that was not enough to make up for what was not spent during the level 4 and 3 lockdown.

“Regional economies have taken a battering from the pandemic, but local leaders, businesses, and communities have shown incredible resilience to get their local areas moving ahead. Rapid deployment of support, and strong local coordination, has meant that regional economies have responded immediate to get the economy moving again, with a focus on building the economy back better.

“The June 2020 quarter likely represents the largest single hit to the New Zealand economy on record, but the economic scarring and restructuring will continue to occur over the coming years. New Zealand is not out of the woods yet.”

Locals taking holidays would help regions that were suffering but would not replace the loss.

“We need to be realistic, it’s not going to be the same… we have lost $17 billion in international tourism.”

Olsen said it made sense from an economic and health perspective to keep the borders closed but as the understanding of the virus improved, the country would need to think about how it managed the borders.

There was unlikely to be a rush of international tourists, even if the borders were open, he said, but there could be ways to support other parts of the economy.

“It’s not worth trying to bring back 5 per cent of the economy if it locks down the other 95 per cent. Tourism is an important part of our recovery but not the only part.”