Omicron outbreak likely to hit the economy differently than previous outbreaks, leading bank says

Higher levels of absenteeism and changes in behaviour are likely during Omicron, ASB says.
Higher levels of absenteeism and changes in behaviour are likely during Omicron, ASB says. Photo credit: Getty Images.

The Omicron outbreak will hit the economy differently than the COVID-19 outbreaks in 2020 and 2021, a leading bank says.

It comes as the country moved into the 'red' traffic light setting at just before midnight on Monday, after Omicron cases were confirmed in the community.

Releasing ASB's weekly economic report, ASB chief economist Nick Tuffley said the economic impacts of the COVID-19 Omicron outbreak are different to those of 2020 and 2021, when alert level restrictions "heavily curtailed" the types of activities people could do.

Under the COVID-19 Protection Framework traffic light system 'red' setting, businesses and retail outlets can remain open and there are no restrictions on domestic travel. Gatherings for up to 100 vaccinated people are allowed, including at hospitality venues, with 1-metre distancing in place.  

"There will be a huge number of infections, widespread disruptions and pressures on our health system, and these are what will dominate the economy over coming months," Tuffley said in the report.

With Omicron case numbers expected to grow, the main economic impacts are likely to come from worker absenteeism (infected people and their close contacts self-isolating at home), and changes in behaviour.

Commonwealth Bank of Australia (CBA) estimates show that of a population close to 26 million people, around one million could currently be in isolation. Making an allowance for working from home, that would equate to a 3-to-4 percent reduction in labour hours worked over January, Tuffley said.

Based on the estimated CBA figures, which capture peak periods of the Omnicron cases in Australia, Tuffley told Newshub if the number of live cases in New Zealand grow to a similar proportion, it would be realistic for 200,000 New Zealanders to be isolating at home at any given stage. 

"At this point, New Zealand requires longer isolation periods than in Australia, which could proportionately see more people isolating," Tuffley said.

With infected cases and their close contacts in self-isolation for up to one month (Ministry of Health rules state a minimum of 14 days for cases, longer for household contacts), to minimise exposure risks.

"For businesses, it will be important to work through how to minimise the impact of staffing disruptions and how to adapt to/anticipate customer behaviours," Tuffley added.

As people make their own judgments on what they feel comfortable doing, industries that are constrained by the capacity restrictions of the red settings, such as hospitality and events and close-contact services (e.g. hairdressers and beauty salons), are among the types of businesses that could be affected by changes in behavior and spending.  

Goods spending is unlikely to be affected, but behavior changes could result in a surge in online shopping.

During the COVID-19 level 4 lockdown, which started on August 18, card spending dropped 20 percent over the August month, ASB figures show.

"A decline of 3-5 percent looks more realistic than the 20 percent fall we saw in retail spending on cards during the peak of 2021 lockdown restrictions," Tuffley added.

Overall, the economic impacts are likely to be "much milder" than during the COVID-19 outbreaks of 2020 and 2021, which relied heavily on restrictions to minimise contact," Tuffley said.

"This time around we are mainly relying on high vaccination rates and limiting large-scale gatherings, which means economic disruption will be primarily driven by the need for people to isolate at home."

Inflation figures, to be released by StatsNZ on Thursday, are a key focus this week.

Similar to Kiwibank's 6.2 percent annual inflation forecast, ASB is forecasting annual inflation to hit 6.1 percent, edging higher in the first quarter of this year.

Irrespective of Omicron, ASB expects the Reserve Bank to keep raising the wholesale interest rate, currently 0.75 percent, to around 2 percent by the end of this year.

For businesses whose staff are required to self-isolate, or who are waiting for a COVID-19 test result and can't work at home, the Government Leave Support Scheme, ($600 per week per full-time worker and $359 per week per part-time worker) and Short-term absence payment ($359 per eligible worker), are available.