Lockdown brings pain
More economic pain is ahead for New Zealand – but we won’t know for some time whether we could have had a cheaper, yet still effective, response to Covid-19, economists say.
The OECD has released its latest economic outlook report, which says the lockdown measures brought in around the world had slowed the spread of the virus and reduced its death toll but had also frozen business activity, widened inequality, disrupted education and undermined confidence.
‘‘As restrictions begin to be eased, the path to economic recovery remains highly uncertain and vulnerable to a second wave of infections. With or without a second outbreak, the consequences will be severe and long-lasting.’’
The report predicts a
9 per cent drop in gross domestic product for New Zealand this year, based on a single-hit Covid-19 scenario. That was compared to a 14 per cent drop for France, Italy and Britain and just over 8 per cent for the United States.
The economy should return to pre-Covid levels by the end of next year. If there were another wave of global infections in the end of 2020, GDP was expected to drop by 10 per cent in New Zealand this year and still be 3.5 per cent below its pre-Covid levels by the end of 2021.
The OECD report said many workers would be out of jobs this year and businesses would be prone to insolvency. ‘‘The economic recovery will be supported by substantial fiscal and monetary stimulus but will remain sluggish, as high unemployment and weak business confidence hold back domestic demand and export growth is stymied by the collapse of international tourism.’’ A surge in unemployment following the scaling back and subsequent termination of the wage subsidy scheme, together with a large reduction in net inward migration and a loss in housing wealth, would hold back private consumption in this country, the OECD said.
‘‘Business investment will remain subdued, reflecting weak business confidence and low capacity utilisation. Goods exports will increase on the back of strong global demand for food but tourism exports will be slow to recover because the border is likely to remain closed to foreign visitors until at least early 2021.’’
NZIER principal economist Christina Leung said New Zealand was in a good position relative to the rest of the world because it had been able to relax restrictions more quickly.
‘‘However, many challenges remain ... The Covid-19 outbreak has shifted priorities in the global economies, and we expect foodbased exports will continue to fare better than non-food exports over the coming years.’’
Shamubeel Eaqub said New Zealand’s health response meant the domestic economy would recover more quickly, although the country was still exposed to what was happening in the rest of the world because of its global trade. ‘‘If others are going through a recession, there is an impact on us.’’
He said New Zealand was able to find a ‘‘new normal’’ more quickly, but that did not mean it was better, or even the same, as before.