Coronavirus: Economists demand 'magic numbers' from Govt, Treasury as lockdown drags on

An economics professor says the biggest threat to the economy is the ongoing psychological toll the lockdown will be taking on Kiwis.

Another economist says it's a "cold hard reality" more businesses are going to go under thanks to the Delta than the original outbreak in 2020. 

The Government on Monday said Auckland - the engine of the country's economy - would stay at alert level 4 until at least Tuesday next week, while the rest of New Zealand is at the beefed-up 'Delta level 2'. 

"Estimates can vary, but broadly speaking the Auckland economy is one-third of New Zealand; assuming Auckland is about 20 to 30 percent non-operational at alert level 4," independent economist and former ANZ chief Cameron Bagrie told The AM Show on Tuesday. 

"The general number in regard to impact on GDP is slightly in excess of $1 billion."

While the Government is offsetting a lot of that with its support packages, Bagrie said that doesn't make up for lost turnover - and many are going to close, not just during the alert level 4 and 3 lockdown, expected to be the longest in New Zealand to date, but over the coming years.

"Unfortunately, I think that's the cold, hard reality in regard to where we sit. It's not just the length - a lot of it is the uncertainty in regard to what it's going to be like out the other side. The Reserve Bank noted in their August monetary policy statement that living in a Delta word, maybe that's going to hit the productive capacity of the New Zealand economy which basically is a fancy way of saying this thing is going to have long and enduring impacts in 2022 and 2023. 

"The big issue for business at the moment isn't just getting out the other side… but people are starting to think, what does the world look like over subsequent years and what is growth going to be like in certain sectors in particular?"

Economics professor Robert MacCulloch of the University of Auckland said Treasury has failed to do any kind of cost-benefit analysis to see if lockdowns are still worth it, when it comes to protecting the economy. GDP bounced back hard after New Zealand eliminated local transmission of COVID-19 last year, strengthening the argument in favour of having zero tolerance for the virus. 

"A strong public health response is still the best economic response," Finance Minister Grant Robertson said in August

Prof MacCulloch said the billion-dollar estimate came from a Productivity Commission report last year, which was just a "back-of-the-envelope" calculation. Experts at the time it was made public - in August, after an Official Information Act request from Newshub - rubbished the report's conclusions, one saying it was based on a "toy model" of disease transmission which "grossly underestimated" the benefits of staying in level 4. 

"It's vital, because my view is that none of us really can make a clear judgement on this until we have the numbers in front of us," Prof MacCulloch told Newshub. "What are the costs to livelihoods? People are concerned about their jobs and obviously their health as well... we want to know, do the costs outweigh the benefits or not? ....

"We just don't exactly know. The risk in my opinion is not so much just the billion-dollar cost a week of the lockdown - which is enormous. I think this time around the psychology is somewhat different - people's mood is somewhat more fragile. Should the mood darken somewhat, that's what can start causing really enormous costs. I think the psychological effects are extremely important this time around. I think the country wants this to be a success - it's almost like our national pride is at stake. 

"So I think that the extent to which the lockdown goes on, people become despondent - that's the biggest risk of all to the economy."

Grant Robertson and Cameron Bagrie.
Grant Robertson and Cameron Bagrie. Photo credit: The AM Show / Newshub.

Bagrie said while the Government has insisted its target for vaccination is simply everyone, businesses would rather have a number.

"At the moment they're down in the trenches, they're armoured up and doing as best they can, but they need to have a little bit of hope in regard to what are things going to look like, what level of vaccination do we need to be at before elimination basically goes out the door and we start to have that more balanced discussion between health, the economy and mobility. 

"At the moment it's a one-sided transaction conversation in regard to health, but at some stage - as we get vaccination rates up - we're going to need to know that 'magic number' so we can get some balance back into those discussions." 

The next decision on alert levels will be revealed next week.