Coronavirus: Economist says retail set for a 'pretty good rebound', with one major caveat - we haven't eliminated Delta

The conditions are right for a massive rebound in retail spending in Auckland, an economist says, but with one big unknown - whether enough of the city's shoppers are willing to increase their risk of being exposed to COVID-19.

The super city moves to step 2 of alert level 3 on Wednesday, allowing most retail stores and public facilities to let customers on-site - with mandatory masks and physical distancing, of course - for the first time in nearly three months. 

After last year's lockdown, which successfully eliminated the first version of the virus from our shores, the economic recovery was a record-breaker - growth of 13.9 percent in the third quarter wiping out losses incurred in the first half of the year. 

While most of the country exited restrictions fairly quickly, Auckland - the engine of the country's economy - has been in a state of lockdown since mid-August. Bagrie says most of the pieces are in place for retail to boom in the coming weeks.

The magical ingredient for the rebound is obviously opening up, but we've got an awful lot of pent-up demand," he told The AM Show on Tuesday.

"Up in Auckland you've got a fair bit of cabin fever, so people are going to want to go out. Behind the scenes you're still getting really strong asset price growth, that's going to drive what's called the wealth effect. Income growth has been really buoyant, more people in jobs, wages moving up. 

"You've got all the critical ingredients for a pretty good rebound over the coming few weeks subject to one big caveat."

And that's because this time around, we're opening up with the daily number of new cases trending upwards exponentially - rulebreakers allowing the highly infectious Delta variant to overpower our tight level 3 restrictions

"Easing restrictions in Auckland while cases are doubling about every 12 days is a risky move," said Michael Plank, a disease modeller at Te Pūnaha Matatini and the University of Canterbury.

"The Government is banking on the new freedoms not contributing to a big increase in transmission. However, with 700 cases from the last 2 weeks remaining unlinked, the reality is we don’t actually know where a significant proportion of our cases are coming from. 

"Interactions in a typical retail setting are lower risk than in say hospitality and social gatherings. However, they will still provide opportunities for the virus to spread through the community so some increase in cases is probably inevitable."

Bagrie said this will put some shoppers off.

"There's still going to be a pretty big portion of the population out there that's going to be pretty cautious in regard to what they want to do pre-Christmas. So yes, a rebound of sorts, but if I have a look at trading activity from August through until December this year, will it be up on 2020 or down? My bet is it's going to be down." 

And the economic dampener might not come off even if we manage to get on top of this outbreak. Many countries overseas have had to roll back regained freedoms after new outbreaks threatened to overwhelm their health systems, Luckily Auckland's vaccination coverage is not only among the highest in New Zealand, based on first doses to date, it's set to be among the best in the world.

Another disease modeller, Shaun Hendy of Te Pūnaha Matatini and the University of Auckland, has suggested the most restrictive 'red' mode of the new traffic light system might be in place for two-thirds of 2022. 

"If you look at what we're seeing in various jurisdictions internationally, it does have a little bit more of an enduring impact on spending," said Bagrie. 

"That's the big difference between this lockdown versus what we experienced in 2020. In 2020, you eliminate the damn thing… we get back to a normal pace of affairs pretty quickly. This time around we are going to see a little bit of that pent-up demand… but we need now to live with the enduring impact of COVID… 

"We're going to need to adjust our lives, and the likes of retail spending and hospitality is going to feel the impact of that in 2022."