Economic Weekly: Here we go again, again…

Sunday dinner got rudely interrupted by the unwelcome news that NZ is heading into some repeat of last August’s Auckland L3 and rest-of-NZ L2 lockdown.  The UK COVID variant has made it out into the community, with the source of infection as yet unknown.

So, economically speaking, what does this mean?  The key determining factor is how long the lockdown goes on for, and for that we will have to wait and see.  If it is merely a matter of days, the economic impact will be minimal.  Spending that would have happened (particularly in the services sectors) over this Monday – Wednesday period will likely be caught up on in following days or weeks.  If restrictions continue over the weekend, the potential for foregone revenue in hospitality, for example, starts to step up. 

But it is really important that we reflect on what we have learned about the economy since the August lockdown.  NZ businesses proved surprisingly adaptable to operating under restrictions.  Many retailers, for example, have stepped up their online or contactless sales methods, enabling a fair degree of commerce to continue.  It is largely those activities that require face-to-face contact that bear the brunt. Even then, however, the longer-term impact will depend on the extent to which people catch up on what they originally wanted to do vs. outright cancellation.

When the August 2020 lockdown started, we estimated that the weekly value of lost activity was likely to be around 0.15% of annual GDP.  These estimates were derived from estimating how much of the economy was not permitted to operate and didn’t take into account any potential for post-lockdown catch-ups activity.  This time around we think the GDP impact could be slightly less than half that given how NZ adapted in the last lockdown.  NZ GDP rebounded by a more than expected 14% in the September 2020 quarter even while spending a chunk of the time under restrictions.

One of the clear indications of how we adapted was that people movements to places of commerce during the August lockdown were greater for given levels of lockdown than was the case during the first March – June lockdown.  We could also review the lockdown restrictions to focus on ‘safe’ vs. ‘essential’ activity.

On a final note, what is it about toilet paper?  Unlike money it actually grows on trees (sort of) in NZ.  It’s coffee supplies we need to be worrying about, plus whether or not it is now socially acceptable to watch Bridgerton during lockdown!  Take care out there and we hope you have to hand everything you need to get through this latest – and hopefully – brief lockdown.