Don’t panic — this won’t sink our economy

Let’s not sugar-coat it. This is not good. We can all agree on that.

But 12 more days with Auckland in level 3 won’t sink our economy.

Based on the estimates by ASB economists it is likely to cost the New Zealand economy roughly an extra billion dollars — about one third of a per cent of GDP.

That figure is based on a broadbrush assessment of Auckland’s relative GDP contribution (38 per cent) and estimates by Treasury of how much economic activity can take place at various alert levels (80 per cent at level 3).

The final cost might be a little higher — or lower. RBNZ chief economist Yuong Ha said this week estimates of the damage that alert levels did to economic activity had so far proved to be on the high side.

Workers and business people had proved more adaptable than initially expected.

“This event won’t be a repeat of the March-May shock, and while it is definitely a negative development, won’t stop the underlying improving trends in our economy,” said independent economist Tony Alexander.

In the grand sweep of this historic downturn and long recovery, the final economic impact of the new lockdown will be modest. That’s a point ASB’s Mark Smith, the economist who did the cost estimate, made in the same report.

Let’s also not forget that a return to lockdown was already baked into forecasts by both the Reserve Bank and Treasury back in May.

The fact that as an economy we’ve been doing better than expected makes this step back into lockdown hurt more. Like making it to a Cricket World Cup final, being odds on to win in the final over and then having the win snatched away. Or being 8-1 up in the America’s Cup before losing 9-8.

We need to keep the next two weeks in perspective of the epic scale of events this year.

To get a sense of that scale, the RBNZ this week boosted its capacity to print money by $40 billion — to $100b.

At a macro-economic level that’s what we were dealing with last Monday — and it’s what we’re still dealing with.

But, of course, its at a microeconomic level where the pain happens.

There’s no getting around the fact that the new lockdown will sink more businesses and cost more jobs, a cruel, heartbreaking blow.

This is a wake-up call, a reminder that the world we face now is more fraught with uncertainty. ANZ economists Miles Workman and David Croy make this point in their latest report: “Risks to our outlook are now skewed firmly to the downside, with the Quarter three rebound in activity likely to be weaker for it. How much weaker, and for how long, will depend on what follows.”

But even with more clarity on alert levels “uncertainty around the economic implications will be extreme”.