Economist's warning to New Zealand: Coronavirus to bring biggest recession of our lifetime

A leading economist says the Government has a "massive fiscal repair job" on its hands as it tackles the biggest economic recession of our lifetime thanks to the coronavirus pandemic.

Cameron Bagrie, managing director and chief economist at Bagrie Economics, says New Zealand will bounce back somewhat when Kiwis return to work after the lockdown, but warns there will be "tectonic changes" to our economy on a longer term basis.

He also predicts New Zealand's gross domestic product (GDP) will contract by 5 to 10 percent compared to 2 to 3 percent during 2009's Global Financial Crisis, and expects unemployment to climb to double-digits.

"A lot depends on how long we will remain in lockdown mode," Bagrie told Peter Williams on Magic Talk on Wednesday.

"Yes the economy will bounce sharply when people go back to work, but I think that bounce will be somewhat limited," he added, citing the havoc strict border control measures will wreak on our $17 billion international tourism industry.

"Day follows night, just as night follows day. At some stage we will come round the corner and come out the other side - but I think this is a big reset. There's going to be some structural adjustments that go on here."

Bagrie says the problem for the Government now is that it's "racking up a hell of a lot of debt" with financial support schemes for Kiwi businesses and individuals.

While he acknowledges that's "the right policy", he says at some point they'll have to find ways to offset their debt - and that's bad news for New Zealanders.

"Let's not forget that at some stage we're going to have to pay that debt back down, so the next wave for taxpayers is they're going to get shot with higher taxes or less spending as we go through what is a massive fiscal repair job," he said.

Bagrie said another solution for the Government could be to allow inflation to occur over the next decade or so, which would help them "inflate the debt away"

But he said despite what the Government does, changes to New Zealand's economy are inevitable.

"I think there are going to be some tectonic changes," he said.

"We are going to need a big economic shake-up to get the economy flourishing and working a lot better on the other side. We're going to need to be a lot more dynamic, innovative and productive."

Bagrie's outlook for New Zealand's economy echoes that of the Finance Minister, who on Wednesday predicted a "quantum economic shift" would hit us harder than the Global Financial Crisis.

He said the financial impacts of coronavirus will make the drafting of Budget 2020 a challenging proposition.