COVID-19: Strict lockdown's economic benefits starting to show - economist

New Zealand's fast and hard lockdown is starting to show signs it was the right move not just from a health perspective, but an economic one, according to economist Shamubeel Eaqub.

The New Zealand dollar (NZD) is rising against foreign currencies, increasing Kiwis' purchase power. The NZD is now trading at 64.1 US cents, up from 62c a week ago and 57c when we went into alert level 4, temporarily crippling the economy in order to stop the spread of the deadly coronavirus. 

While the resulting recession is likely to be the deepest in decades, Eaqub says it appears the Government made the right call - not just in terms of health, with just 22 deaths out of a worldwide tally of 385,000 to date, but also the economy.

"Markets are betting that over the course of the next one or two years, New Zealand will have a less-interrupted economy than many other parts of the world," he told The AM Show on Thursday.

"When we went hard into lockdown, it became very clear that we were prioritising elimination of the disease, which meant you would have a relative opening up. There is a real big cost in that upfront locking down, but that's why it came with such big stimulus - the Reserve Bank went all-out, the Government went all-out. 

"Hopefully that means we will reduce the amount of job losses and business failures for now so we can get to some level of normalcy."

Shamubeel Eaqub.
Shamubeel Eaqub. Photo credit: The AM Show

The US, which has had a comparatively incoherent and muddled response to halting the virus' spread, has suffered much greater job losses than New Zealand - around 25 million since the start of April. This week's violence hasn't helped either, with investor sentiment in the US turning pessimistic according to business tracker Trading Economics. 

"June is going to be bad and starting with July, if the pandemic doesn't get any worse, then we will slowly see some improvement," economist Lucy Dadayan told Reuters

"We definitely expect the second quarter to be the worst and that things will start to increase in the third quarter slowly," added Moody's economist Sarah Crane.

The US has had more confirmed infections and deaths than anywhere else in the world, and is still losing people at a rate of about 1000 a day. New Zealand has had no new cases in the last 12 days, and is looking likely to move to alert level 1 next week - the final step before returning to normality, if there are no new outbreaks. 

"The currency has risen because markets think the New Zealand economy is going to be doing better than many of its peers," said Eaqub. "It's been rising pretty much since the middle of April - we could see that the disease was getting under control, that the economy would be opened up. We've seen that in the data."

Parts of the economy will take longer to recover. Tourism clearly will continue to struggle as long as border restrictions are in place, and though large events such as concerts will be allowed under level 1, international stars are unlikely to visit due to quarantine procedures. 

"It will take some time for the sector to recover," Eccles Entertainment managing director Brent Eccles told Newshub. "It was one of the first things to be hit, and it will be one of the last sectors to start again."

"If we now act responsible... and come up with a good code of practise that we all agree to and stick to it, we'll be able to move forward and have some good fun." 

The biggest obstacle to a speedy recovery might be consumer behaviour rather than restrictions, said Eaqub.

"We might still be a little bit cautious about going to the cafe and restaurants... don't forget we've already had job losses that are about half as big as the global financial crisis - it's taken us two months to lose half the jobs of the global financial crisis. We're still in a recession, but relative to what's happening say in the US or in many parts of the UK, New Zealand is in a much better position." 

Eaqub suspects he caught the virus, but it was early in the outbreak before services like Healthline had been beefed up to deal with the extra demand, so he didn't get formally diagnosed.

He stayed in self-isolation throughout his illness, which he said showed all the classic symptoms of COVID-19. 

"It was really quite frightening and I'm really glad that we're not taking any risks in spreading the disease to other folk." 

Contact Newshub with your story tips:
news@newshub.co.nz