Kiwis urged to brace for tougher recession as China's COVID-19 surge impacts supply

New Zealanders are being warned to brace for a longer and tougher recession due to China's explosion of COVID-19 cases.

It's estimated nearly 300 million people in China have contracted the disease since restrictions were lifted last month, impacting supply chains and manufacturing.

After China abandoned its zero-COVID policy last month, cases there have since spiralled out of control and three-quarters of staff in some Chinese factories are unable to work.   

It's caused manufacturing output to plummet and for the first time in 40 years, China's economic growth is likely to be at, or below, the rest of the world's.

Infometrics Principal Economist Brad Olsen said that's bad news.

"Although we were already expecting recession across the world in 2023, this recession could go longer and stronger because of how weak the Chinese economy is starting from," Olsen said.

Olsen said the result means New Zealand's recession could be worse than forecast. 

"We could see a harder economic hit in New Zealand, and also across wider Asia Pacific in the early stages of this year," Olsen said.

Australia's treasurer Jim Chalmers agrees, labelling China's outbreak as one of the largest economic risks of 2023.

"There will be broader economic consequences from this quite extraordinarily large wave of COVID," Dr Chalmers said.

New Zealand is in the same boat as the Aussies. New Zealand imports more than $16 billion of goods and services from China, so with pandemic pressure on their supply chains and manufacturing, our cost of living is likely to keep rising.

"We do worry that we might see even higher price spikes," Olsen said.

On the plus side, China's border reopens on Sunday, which director of advocacy for BusinessNZ Catherine Beard said is expecting to provide a much-needed boost.

"I think it'll be really positive for the New Zealand economy because, really, tourism and international students were a huge part of our export earnings, and that's left a big gap in our export receipts," Beard said.

Although it won't all be smooth sailing. 

"Yes it'll be rocky, but we think that'll come right," Beard said.