COVID-19: Economists estimate Auckland's lockdown will cost '$45 million per day'

Economist Cameron Bagrie estimates the three-days of alert level restrictions will cost $255 million - $45 million per day for Auckland.
Economist Cameron Bagrie estimates the three-days of alert level restrictions will cost $255 million - $45 million per day for Auckland. Photo credit: Getty.

COVID-19 alert level restrictions could be costing the country $85 million each day - $45 million for each day Auckland spends in alert level 3, a leading economist says, while another expects a 40 percent daily drop in consumer spending.

Economists’ estimates come on day one of an initial three-day COVID-19 alert level 3 lockdown for Auckland and alert level 2 for the rest of the country. The restrictions follow three cases of COVID-19 confirmed in South Auckland on Sunday, all within the same family. The source is still under investigation.   

Economist Cameron Bagrie says as businesses have learned to adapt, the economy is now more operational at different alert levels. 

Describing the impact in terms of Gross Domestic Product (GDP), an official measure of economic activity representing finished goods and services made in New Zealand, Bagrie estimates each day at alert levels 3 and 2 will cost the economy $85 million ($255 million over three days).

"For Auckland I put the impact on GDP [at] around $45 million per day at alert level 3...$40 million per day for the rest of NZ at alert level 2," economist Cameron Bagrie said.

"The hit to business turnover is more than double that."

While Auckland is in alert level 3, Infometrics senior economist Brad Olsen expects consumer spending to drop. In Auckland, consumer spending might drop around 40 percent per day.  Across the rest of the country, by 15 percent per day.

"Based on actual spending outcomes in August 2020 [when Auckland last went into COVID-19 alert level 3], we expect consumer spending will be down around 40 percent from normal - this could cost $175 million in card spending," Olsen said.

Infometrics estimates show that during alert level 3 restrictions, 28 percent of Auckland workers (around 250,000 people) aren't able to work.  But as business processes have improved and protocols updated since the last round of restrictions, there could be a lot more businesses  operating under alert level 3 than last year.

Once restrictions are lifted, experience from last year shows pent-up demand could claw some of the productivity and spending losses back again.

"We expect the hit to the economy to be swift but are optimistic that the bounce back will also be rapid once any potential spread is contained," Olsen said. 

As a result of this latest round of COVID-19 alert level restrictions, prolonged loss of international tourists, supply bottlenecks and a slight easing of electronic transactions, Bagrie says March 2021 quarter GDP could fall.

"Alert level restrictions will take another small chunk out of GDP, the size of that chunk dependent on the length of the restrictions," Bagrie added.

Current COVID-19 restrictions are for a provisional period of 72 hours. Prime Minister Jacinda Ardern has indicated that business support would kick in if current COVID-19 restrictions stay for seven or more days.  

In August 2020, the Resurgence Wage Subsidy was provided to businesses that could show at least a 40 percent drop in revenue over 14 days, compared to a similar period the year before. If restrictions persist and businesses are unable to operate, this support will be needed again.

"The Government has considerable fiscal headroom, even within the expected COVID-19 Response and Recovery Fund (CRRF) to provide financial support if restrictions continue longer than a few days," Olsen added. 

An official measure of economic growth, Statistics New Zealand data shows GDP for the September 2020 year was $321 billion.  After falls of 1.6 percent and 12.2 percent in the March 2020 and June 2020 quarters, GDP increased by a record 14 percent in September, down 2.2 percent year-on-year.  Retail spending was $6.006 billion in January, down from $7.460 billion in December but up $115 million year-on-year.