A bank report shows COVID-19 impacts will take 12-18 months to work through the local economy.
Released on Friday, ASB bank's quarterly economic forecast shows New Zealand is entering an economic crisis where permanent shifts in behavior are realised and "swift hard decisions" are required.
Chief economist Nick Tuffley said that surviving the economic crisis will require Kiwis to be adaptable and flexible.
"Surviving the impacts of the lockdown and reopening when ongoing restrictions, behavioural changes, and potential for spending caution mean revenue streams are highly uncertain," he said.
"It has been – and will continue to be – a time of swiftly making hard decisions."
From an economic perspective, there are three stages:
- Surviving the crisis.
- Adapting through the transition.
- Rebuilding under the new normal.
Demand for locally-produced inputs is expected to increase.
"New Zealand will reimagine itself in what will become the 'new' normal. Supply chains are likely to focus more on reliability and resilience, favouring local sources more, even if at higher cost," Tuffley said.
The bank expects trade to become less reliant on people movements, with a rise in remote methods for producing goods and services.
"The importance of fully leveraging technology has been starkly highlighted, and will change how we shop, work, and influence where we live," Tuffley added.
As global recovery is dependent on each country's ability to manage the COVID-19 outbreak, Tuffley said it's too soon to tell how activity will pan out compared to expectations. China's recovery will be used as a guide for how quickly economies can recover.
"China was obviously first to be hit by COVID-19 and looks to be coming out the other side in a stronger position than most - we expect Chinese GDP growth of 1.5 percent annually for 2020, '' Tuffley said.
Overall, New Zealand's key trading partners are expected to do better than the global average.
"The consensus sees growth in New Zealand's trading partners bottoming out around -2.5 percent for this year, before a rapid recovery to nearly 6 percent in 2021," Tuffley said.
The Government's fast decision to enter lockdown to combat health risks puts the country in good position for the alert level to move lower.
As health risks reduce and the economic crisis begins, the next 12-18 months are expected to bring a lot of change, with the possibility that recovery will be faster than expected.
Speaking on Magic Talk on Friday, Tuffley said that with virus cases almost eliminated, New Zealand is doing better than other countries, where waves of cases are expected over the coming year. Return to the new normal could be faster than expected.
"Eliminating the virus, combined with some very encouraging real-time activity indicators suggesting a faster recovery in activity during [alert] level 2 than we expected, suggests the risks to our New Zealand economic forecasts may be starting to skew to the upside," he said.