Coronavirus: Economic impacts dependent on how well virus is contained - experts

Just how bad the economic impact of coronavirus is on New Zealand's economy depends in a large part on the health response, experts say.

The Government on Tuesday announced a $12.1 billion economic package aimed at supporting businesses affected by COVID-19.

Almost half of the funds go towards covering immediate wage subsidies, with sick leave subsidies, an aviation support package and health sector funding also part of the injection.

Kirk Hope, chief executive of Business NZ says, "in general" the package is an apt response to the coronavirus pandemic. 

"It really deals with some of the immediate cash-flow issues for small and medium-sized businesses in New Zealand," Hope told The AM Show on Wednesday.  

He said there would almost certainly be more funding to come.

"This was the beginning as a package, not the end - I think the Minister of Finance was very clear about that yesterday. Larger businesses...where they have sufficient capital, will be able to continue to operate - they're probably ok.  The challenge will be maybe three months down the track."

A total of $5.6 billion of the package was allocated to wage subsidies, available immediately for workers affected by the pandemic. A further $126 million went towards paying for sick leave and self-isolation support.

A total of $2.8 billion was given to income support, including a $25 per week benefit increase and a doubling of the Winter Energy payment for 2020.

Hope says the rationale behind giving more to beneficiaries is that that money will eventually circulate out into the wider economy.

"I guess the theory is that they'll spend it and that'll push cash through the economy so it'll be spent in businesses, again, that'll be used to pay people," he said.

"What the package does is support the New Zealand economy. There are a number of ways that you can do that - would we have preferred that $3 billion was spent on more wage subsidies? Of course I'm going to say that, but at the end of the day if those people are spending money in businesses it will end up in the pockets of people who are employed in those businesses."

Political commentator Chris Trotter says the decision to inject cash into the economy came as a result of lessons learned from the 2008 Global Financial Economy.

He said how the Government handles the current crisis will be crucial for its reelection prospects.

"This is going to be the making or the breaking of this Government and they have started out well," Trotter told The AM Show. "They're channelling the spirit of [Michael Jospeh] Savage for all they're worth and that's the right thing to do because this is a challenge on a scale equal to the 1930s and it's going to require that sort of massive state intervention to carry us through," he said.

"We're all socialists now," Trotter said, referencing a Newsweek cover published during the Global Financial Crisis.

Trish Sherson, also a political commentator, said the package announced yesterday was akin to"quickly trying to mainline straight into the veins of particularly small and medium business who would have been hit." 

She said the situation was "very different" from the Global Financial Crisis.

"That was about the central banks trying to get more money into the banking system to fix up what was happening there," she said.

"This requires the Reserve Bank to do its bit in terms of lowering interest rates. Now you've got the Government with this shot in the arm and then what the Government has signalled is the second package which they're calling recovery is going to come around the Budget."

She also predicted more interim support from the Government, as well as more help for larger businesses, "to keep the economy ticking over until we can come out the back of this".

The package also included a $500 million boost for the health sector, with the money going towards GPs, emergency room equipment and contact tracing, among other things.

Hope said ultimately how much damage the economy suffers as a result of COVID-19 depends on how well the virus is contained on a health level.

"What we're looking at is a pretty significant downturn and it may be for a prolonged period of time if we can't get control and contain the virus, that's basically the bottom line here," he said.

"If we can contain the virus we've got the best chance of the economy bouncing back quickly."