OECD says NZ could face near-30pc hit to economy
New Zealand’s economy is likely to suffer a bigger coronavirus blow than most in the OECD, new research says.
The OECD has put out a new report evaluating the impact of Covid-19 on economic activity. It does not take into account government stimulus in those countries.
It said the initial direct effect of shutdowns could be a decline of between one fifth and one quarter in most economies as spending dropped by about a third.
‘‘Changes of this magnitude would far outweigh anything experienced during the global financial crisis in 2008-09. This broad estimate only covers the initial direct impact in the sectors involved and does not take into account any additional indirect impacts that may arise.’’
New Zealand would see an initial drop of almost 30 per cent in activity, the OECD said, compared to about 15 per cent in Ireland, 22 per cent in Australia and 25 per cent in the United States.
The implications for annual GDP growth would depend on the magnitude and duration of national shutdowns, and the extent of reduced demand, the OECD said. ‘‘The scale of the estimated decline in the level of output is such that it is equivalent to a decline in annual GDP growth of up to 2 percentage points for each month that strict containment measures continue.’’
Christina Leung, chief economist at NZIER, said the effect of the outbreak in each country would depend on how long and successful a suppression strategy was.
‘‘It is undeniable that these unprecedented measures of shutting down the economy will have immense costs for each country. However, for countries that manage to get Covid-19 under control, these costs will be outweighed by the benefits of a healthcare system that continues to function effectively and a generally healthy population.’’
Economist Shamubeel Eaqub said the report showed the economic impact was going to be significant but did not take into account the efforts being made to mitigate it, such as the Government’s wage subsidy.
He said New Zealand fared worse in the OECD comparison because of how the report estimated the impact on various sectors. Ireland was less affected because it had more economic exposure to the relatively untroubled tech sector. New Zealand had more reliance on tourism.
New Zealand businesses might make it through the next two to three months with the assistance of the subsidy, he said, but what happened after that was not yet clear.
Once it ran out, those organisations could face returning to a market without pre-Covid-19 levels of customers and revenue.
That could lead to more failures, he said. ‘‘That’s the point of the programme, to delay things and buy as much time as possible to do the health stuff. If we can do that, then we can turn our attention to the economic side.’’
Infometrics chief forecaster Gareth Kiernan agreed the big question facing politicians was what would happen on the other side of the lockdown. ‘‘Obviously, the longer the lockdown lasts, the greater the risk for any firm that they don’t have the cash flow to survive, or that the weeks of missing revenue with ongoing expenses – even somewhat reduced – force them out of business.’’
He said bank economists were being too optimistic about their GDP predictions into the future.
‘‘In terms of infection control, New Zealand seems to be relatively well placed compared to much of Europe and North America. It’s likely that many other developed economies could be in a worse situation than ours on the other side of this outbreak. New Zealand is heavily reliant on trade, but the global economy is probably not going to be able to provide much help for our recovery.’’
‘‘. . . the global economy is probably not going to be able to provide much help for our recovery.’’
Gareth Kiernan, Infometrics