Coronavirus: Why the economy probably won't get a post-lockdown bump like it did last year

An expert is warning Kiwis not to expect another record bump in the economy after the current lockdown is over.

Last year's all-time drop in economic activity was followed by an equally record-breaking rebound - quarterly drops of 1.4 and 12.2 percent in March and June followed by a stonking 14 percent rise in the October quarter. 

New Zealand proved in 2020 the superior economic approach was to eliminate community transmission of the virus. Not only did spending storm back, unemployment quickly dropped back to pre-pandemic levels and the Reserve Bank is expected to soon raise interest rates for the first time since 2014.

"We as a country have managed to have our businesses open for more days over the last 18 months than almost any other country in the world," Finance Minister Grant Robertson told The AM Show on Thursday. "The payoff for all of this is the fact that we get back to normal, we get back to alert level 1. We proved that last time and the New Zealand economy did really well." 

While it's not ideal being in lockdown - or at the tougher level 2 restrictions introduced to fight the Delta variant - businesses have learned a lot in the past 18 months, says Milford Asset Management portfolio manager France Sweetman.

She told The AM Show the early signs are the economic impact of the Delta lockdown won't be as bad as last year's. 

"Businesses were ready and set up for this, and the Government allowed more essential services to be brought online. Consumers had also adapted to how to get the goods that they needed - so spending didn't drop the way that it did in the first lockdown."

Spending last year cratered - down about 60 percent. This year, she says it dropped less than 40 percent - so while that's good, it means the surge in spending when restrictions come off won't be as spectacular. 

Proof of that is emerging at fast food outlets in parts of the country already at level 2.5, she said.

"Those queues haven't been as long [as last year]. That has made a difference. We're not seeing that big surge."

There's also the looming official cash rate rise from the Reserve Bank. It was widely expected to rise in August, but the Delta outbreak got in just in time to stop it. 

"The real important difference is we're going to be coming out of this into official cash rate rises - dropping interest rates really pushed some of that spending surge last time. The great news is though the economy doesn't need it - demand was reasonably strong as we went into this lockdown."