Coronavirus: Economist warns of 'very challenging year' ahead with a 'lot of pain' to come for Kiwi businesses

It's going to be a very difficult year ahead, a leading economist is warning, with small and medium businesses set to be hit the hardest by the economic fallout from COVID-19.

Figures released by Treasury on Tuesday warned that unemployment could skyrocket up to 26 percent if the nationwide lockdown is extended for more than the planned four weeks.

Economist Shamubeel Eaqub says regardless of whether that happens or not the country needs to brace for a long and drawn-out recovery from the COVID-19 pandemic.

"The recession is going to be quite long, so we should be planning for 2020 to be a very challenging year," Eaqub told The AM Show on Tuesday. "Mainly because the world is going to go through waves of reinfection and waves of lockdowns. This means we will see this kind of rolling wall of recessions, downturns, supply chain disruptions - it's going to be a really bizarre year and this is not going to be like a normal kind of recession."

According to the data released by Treasury, which showed a range of scenarios, unemployment could be kept to under 10 percent, and return to 5 percent next year, if the Government is willing to provide even more financial support than it already has.

Eaqub says the Government needs to do all it can to stop businesses failing if it wants to avoid the worst-case scenarios painted by experts' projections.

"It's not so much that the forecasts are going to come true, it's more that if you see a really terrible forecast, how aggressive will you be in terms of your policy efforts?"

He predicted that once the immediate impacts of the lockdown blow over, the country - and the world - is in for some tough times.

"We're going to see a lot of pain out there and the welfare system has to be really, really robust to make sure the people who lose their jobs are looked after."

Studies from overseas have shown that between 40 to 60 percent of small and medium businesses have less than one month's cash reserves to fall back on, Eaqub said, meaning the outlook is grim for many if the Government doesn't offer more financial support.

"The biggest challenge is that packages that we've announced right now are probably not big enough relative to the challenge that we're facing right now," he said.

"I would expect the Government has to come up with more support over the coming weeks to make sure when we come out of the lockdown we still have many of our businesses and jobs still viable."

Finance Minister Grant Robertson said on Tuesday that the Treasury's projections do not foreshadow an extension of the lockdown, with that decision to be made on April 20.

Opposition finance spokesperson Paul Goldsmith said the scenarios were "terrifying" and underscored the need to get out of level 4 "as soon as we safely can".

Eaqub said even when businesses are allowed to operate as usual, more money would still be needed to be injected into the economy, first through public projects and then through support of private sector projects.

Brett O'Riley, chief executive of the Employers and Manufacturing Association (EMA) told The AM Show on Tuesday that as well providing financial support the Government would need to think outside the box in order to kickstart the economy.

"It's obviously critical that we get as many New Zealanders working as possible and that's going to require a different approach by Government around regulation - not just fast-starting projects but getting them completed quicker,' he said.