COVID-19: Timing of Delta outbreak couldn't be worse for the economy - Cameron Bagrie

The drawn-out lockdown affecting the upper North Island couldn't have come at a worse time, one economist says, with firms set to miss out on the Christmas sales bump and other festive spending.

Auckland's been under heavy restrictions for nearly two months now, recently joined by parts of Waikato and Northland at level 3, thanks to the ongoing outbreak of the Delta strain of COVID-19. 

The seven-day moving average of case numbers is in the upper-30s, double what it was two weeks ago, and more than half of Monday's reported cases had no known epidemiological link to previous confirmed infections. 

"We're now in the reality where we've got to live with the virus, as opposed to stamp it out and eliminate it," economist Cameron Bagrie told The AM Show on Tuesday. 

Last week, Bagrie explained why it was unlikely the New Zealand economy would have a similar rapid recovery after this lockdown, compared to last year's record-breaking bounce - fewer jobs have been lost this time around, and spending hasn't fallen by quite as much, with businesses having learned from 2020. 

The lingering threat of COVID-19 will also subdue the recovery.

"Where you've got Delta persisting within the community, you see a little bit of pent-up demand unleashed eventually when we shift down through the alert levels - and I don't think to be honest that's going to be happening anytime soon. But the bigger picture is, what's going to be that behavioural shift in spending going forward in an environment where the virus is going to remain in the community?"

Last year's lockdown happened in the June quarter, which Bagrie said was typically soft anyway, limiting the impact it had on business cashflow. But this one threatens to roll on into the all-important Christmas spending season.

"The December quarter is critically important. It's the biggest quarter across the year by a country mile," he explained. 

"If you look at the normal non-seasonally adjusted uptick we see in GDP over the December quarter, it's up around 6-7 percent. A lot of that is retail-related spending, but a lot of it is peripheral activity across the broader economy. That uplift in activity in the December quarter offers firms cashflow, and it offers firms a little bit of a cash buffer as we head into one of those softer quarters - the March quarter next year...

"The longer we eat into that December quarter, the less you're going to see that potential for that uptick in sales, the more firms' cash buffers are going to start to bleed, and then we're going to start to see some fundamental economic problems in the first quarter of next year because they're not going to have those cash buffers to be able to work through those softer months."

If Christmas spending is hit hard, don't expect Kiwis to rush out in February or March to catch up, Bagrie said. 

"There is a very strong seasonal element to activity across New Zealand. A lockdown could not possibly be hitting at a worse time. If you go back and you have a look at the first lockdown, it hit within the June quarter of 2020. That was actually quite a favourable time for us to enter into a lockdown, because it was one of those quarters where activity tends to be a little bit softer anyway. This one is a real gamechanger." 

And with the game now changed, Bagrie also said businesses should expect the Government to ease up on its financial assistance in the near future.

"Dealing with Delta, there is going to be an enduring, long-lasting impact on the economy for years to come. It is not the Government's job to support the businesses in regard to dealing with those enduring, long-term economic costs. Firms are going to need to work it out themselves."