COVID-19: New Zealand's recession will 'technically' be over in two weeks, not a 'great depression scenario' - economist

An independent economist says New Zealand's recession won't last long despite gloomy Gross Domestic Product (GDP) figures. 

Figures released on Thursday showed a 1.6 percent plummet in the country's GDP in the March quarter, suffering its biggest fall since 1991.

Economist Tony Alexander says New Zealand's economic recession in the wake of COVID-19 will "technically" be over in two weeks, but warns many companies will still have a lot of problems trying to recover financially next year.

"The recession will be over in two weeks in that you've got a negative for the March quarter, we'll get a negative for the June quarter but we know that the economic activity is already recovering now. It recovered once we went from level 4 to 3 and then down to 2 and then down to 1, so [the] September quarter is going to be a big increase in the economy," he told The AM Show on Friday. "Technically, it's [the recession] over in two weeks - before you even know it.

"That's where it's difficult because we're still going to be getting very negative data out for a number of months and the trick for people is; look through it. Think about a lot of the positive things happening out there."

Alexander also gave his verdict on whether the COVID-19 economic fallout would be of a similar proportion to the Great Depression in the 1920s.

"The Great Depression wasn't created by the sharemarket crash back then - it was the bad policy response," he said. "Governments around the world cut their spending to balance their books and ever since then, we've had Governments around the world doing the opposite so times get bad, you cut interest rates, you inject money into your system.

"It's not a Great Depression scenario."  

He said the long-term economic impacts of COVID-19 will depend on business confidence.

"The Government needs to be sending a signal to businesses that, 'we've got activities in play here, we're going to make 2021 a bit stronger, maybe it's a good idea that you hold on to your staff rather than laying them off when the second [wage] subsidy ends'," Alexander said.

Economist Tony Alexander.
Economist Tony Alexander. Photo credit: The AM Show

Aiming to keep workers employed during New Zealand's COVID-19 lockdown, the first round of the subsidy expired last week with the second round to last an additional 12 weeks. Alexander said what also might aid economic recovery is showing shovel-ready projects are getting off the ground.

On Monday, the Government announced 11 initial infrastructure projects to be fast-tracked to help stimulate the economy, including roading upgrades, a water storage facility, and a cycleway/walkway between Westhaven and Akoranga in Auckland, which will be allowed to proceed through a fast-track consenting process.

"I think they [the Government] definitely need to get some acceleration in all of that going on," said Alexander.

He urged the Government to further improve business' cash flow.

"Again, sow the seed of doubt about the negative situation in the minds of businesses."

National Party leader Todd Muller said on Thursday the latest GDP figures confirmed the Opposition's "worst fears". 

But Finance Minister Grant Robertson said the Government had always acknowledged its decision to "go hard and early" would impact March and June GDP data.

"Our investments like the $11 billion wage subsidy, tax refunds and the small business cash flow scheme are cushioning the blow for households and businesses through this."