A level four lockdown will be costing the country about $290 million a day, although history suggests some of that loss will be offset as the economy rebounds, says ASB chief economist Nick Tuffley.
Finance Minister Grant Robertson has estimated that the cost of the national lockdown as it is currently planned would be around $1.5 billion.
These kinds of “back of the envelope” calculations were done based on what we have learned about lost economic output during lockdowns.
Assumptions that roughly 67 per cent of output was still occurring at Level four seemed to match up pretty well with reality last year, Tuffley said.
“Normal GDP is about $325 billion ( a year) at the moment. So a full year of lockdown is losing $107 billion. Divide that by 365 and we’re looking at about $290 million per day that is lost,” he said.
“If you did that for seven days you’re looking at $2 billion, if you did it for five you’re looking at $1.5 billion, as a rough estimate.”
Robertson’s estimate was presumably a similar calculation factoring seven days for Auckland and the three days for the rest of New Zealand, Tuffley said.
“When you’re doing these kinds of calculations what you’re asking is: what can we actually do under lockdown conditions?”
“So ok that’s $1.5 billion to $2 billion a week but the key thing is the extent of catch-up activity that occurs afterwards. To what extent do we just make up for that afterwards?”
We had seen that with retail spending and construction activity after the various lockdowns, he said.
“At Level 2 and Level 3 we’re actually pretty good at selling and buying stuff off each other. We’ve figured out how to do all the click and collect and delivery. With things like manufacturing and construction it’s probably people just working longer hours to make up for lost time.”
The big worry was areas like hospitality where the longer it went on, the less likely you were to have enough catch-up celebrations and activities, Tuffley said.
The shorter the lockdown, the more likely that activity just had a shift in timing rather than a permanent loss, he said.
Getting out of Level Four as quickly as possible was crucial.
“At Level 3, Level 2 we’ve shown several times over that the long term impacts tend to be very, very mild.”
Meanwhile, the Government still had “financial fire power” to get through this, he said.
Finance Minister Robertson has said there is around $1 billion left over from the money set aside for Wage Subsidy Scheme and Resurgence Support Payment.
In addition, the Covid-19 Relief and Recovery Fund still had around $5 billion in it.
Beyond that, our Crown debt position is stronger than forecast with accounts to the end of April showing net core Crown debt was 33.9 per cent of GDP, or $2.6 billion less than forecast.
“They are not needing to borrow as much as was expected at the peak of the pandemic last year”, Tuffley said.
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