Tectonic shock to the economy from extreme Covid-19 measures
The cost of keeping the virus out will be high and long-lasting, but experts say it’s the right thing to do. Tracy Watkins reports.
DRASTIC border measures imposed by the Government in response to the Covid-19 crisis are about to send a ‘‘tectonic’’ shock through the economy.
Economists say a recession is inevitable; the only question is how long, and how hard.
Prime Minister Jacinda Ardern’s radical new plan effectively closes New Zealand borders. Anyone entering the country from anywhere in the world, excluding the Pacific, will have to self-isolate. Cruise ships are banned until at least June 30 and a directive on mass gatherings will be announced next week that will have a sweeping effect on sports events, concerts and potentially even Anzac Day ceremonies. Ardern labelled it ‘‘the toughest ‘‘ regime in the world and said she would make no apology for trying to contain the spread of the disease.
The package was announced as New Zealand confirmed its sixth coronavirus case.
The likelihood is that visitors will not want to come here and face compulsory self-isolation. That means a dramatic drop of hundreds of thousands of tourists depending on how long the measures last. Visitor arrivals in the year to June 2019 were 3.89 million, while the number of New Zealand resident traveller arrivals was 3.07 million.
Aviation observers warned that most airlines would likely cease flying to New Zealand.
Reaction to the Government’s radical new measures was as stunned as it was swift; economist Cameron Bagrie said it was ‘‘tectonic, an earthquake’’.
Businesses will be looking to the Government to back yesterday’s measures with more support to help keep them afloat; Finance Minister Grant Robertson announced a package last week but there will be pressure to go much further when he unveils a broader package this week.
Bagrie said the Government needed a plan, and it needed to be ‘‘massive’.
‘‘We are talking a spending and tax package like New Zealand has never ever seen before.’’
That was going to result in some ‘‘ugly’’ debt. The Government sector had a big balance sheet and low levels of debt currently.
‘‘Now is the time to lean on that big balance sheet.’’
Measures to boost domestic spending were vital, he said. A temporary cut to GST had to be considered.
But the effects on tourism could not be overstated;
‘‘For Queenstown, this is a disaster, the tourism sector, Air New Zealand, Auckland Airport – you are talking about a shock of tectonic proportions. My personal view is that this is not going to be just a cyclical thing, with the tourism sector just going back to what it was. There are going to be profound structural changes here as well.’’
But the Government probably didn’t have much choice if it wanted to contain the virus.
Economist Shamubeel Eaqub said the decision was entirely understandable.
Tourism numbers would have dropped anyway, as fewer people wanted to holiday anywhere during a pandemic. He said the priority for the Government was to focus on the people and businesses of New Zealand.
He hoped the economic package, to be announced by the prime minister on Tuesday, would be large and target those people and businesses most at risk.
Places like Mackenzie District, Queenstown, and Rotorua would be hit hard, as they relied hugely on tourism.
Likely weighing on the Government’s mind was the acceleration of coronavirus in Australia, a key source of visitor arrivals into New Zealand.
Ardern said the Government would this week be announcing measures related to the health response, including assistance for people in self-isolation.
Reports suggest Australia is looking at adding 2000 more intensive-care beds to its hospitals.
Associate Professor Siouxsie Wiles, from the School of Biological Sciences at University of Auckland, said Ardern’s moves were ‘‘exactly what is needed to limit the spread of the virus in Aotearoa New Zealand and the Pacific’’ in unprecedented times. ‘‘Now we should start preparing ourselves for how long these measures may be in place.’’
‘They better have a plan and it better be massive . . . we are talking about a spending and tax package like New Zealand has never seen before. ’ ECONOMIST CAMERON BAGRIE