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Economic activity will be cut by almost 9 percent due to coronavirus restrictions, even once the government drops the country to alert level 2, the Reserve Bank predicted.
The central bank estimates that economic activity fell 37 percent during the level 4 block and is currently down 19 percent during level 3.
The impact on the economy would drop to 8.8 percent at level 2, and then drop to 3.8 percent at level 1, he estimates.
But the impact of coronavirus restrictions would be very uneven, with the tourism industry closed and the government sector relatively unscathed, he predicted.
The continued near annihilation of international tourism at level 2 would result in a 4 percent drop in activity, while a projected 75 percent decline in domestic tourism and travel would take a hit of 4.5 percent.
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The remaining 0.3% decrease due to level 2 would be due to continued restrictions on mass gathering and public events.
“We estimate that GDP was about 37 percent lower during the level 4 alert period than it would have been without restrictions,” the Reserve Bank said in the document released Wednesday.
KEVIN STENT / STUFF
The estimates of the Reserve Bank show a slightly lower economic impact due to the blockade than that of the Treasury.
“More than four and a half weeks equaling a $ 10 billion loss of production, reducing annual GDP by 3.2 percent,” he said.
A similar time period at alert level 3 would equate to a drop in output of more than $ 5b relative to the same baseline, reducing annual GDP by 1.7 percent, the Reserve Bank said .
Much more business could be done below alert level 2, but economic activity would still be 8.8% lower than normal, he estimated.
RBNZ
The Reserve Bank calculated which economic sectors performed best under the level 4 alert block.
The sector of the economy least affected by the fight against Covid-19 was the government, which, under alert level 4, operated at 90% of its normal capacity.
Public service providers, such as power companies and telecommunications operations, and the primary sector, including dairy production, also had relatively low success, he believes.
The two ‘worst’ sectors covered by the central bank’s analysis were the accommodation and food industry, which had 11% capacity at level 4, and the construction sector, which operated at 19%.
“Production across all industries has been somewhat affected compared to pre-Covid-19 levels,” said the Reserve Bank.
Economic activity increased significantly when the country went from level 4 to level 3.
“We estimate that GDP will be 19 percent lower during Alert Level 3 compared to no restriction. However, the impact on business is highly uncertain during this period,” its analysis said.
“Although non-essential companies can open, several restrictions remain regarding social distancing. This limits the activity of companies, particularly for those that depend on face-to-face contact with customers.
“As seen at level 4, the guidelines are likely to be further refined as the consequences of the restrictions are better understood.”
The analysis indicated during alert level 4, the Maori economy experienced a 38 percent drop and was also more affected than the overall economy at level 3.
That was due in part to the importance of tourism to the Maori economy.
The economy would suffer a long-term impact on economic growth due to the closure of the borders.
Below alert level 2, international tourism revenues would be 5% of normal, being the only expense of the few international tourists trapped in the country.
Restrictions on mass gatherings would continue to impact sports and entertainment operations, cutting “production” in those sectors in half.
Domestic tourism will remain 75 percent below normal at level 2, estimates the Reserve Bank.
“A small number of immigrants would result in long-term consequences for the New Zealand economy, with a cumulative impact on GDP as long as border restrictions remain in place,” he said.
Closing the border to immigrants for three months would reduce GDP by 0.25 percent, while closing it for one year would reduce GDP by 1 percent, he said.
Estimates suggest a slightly smaller impact on the economy of operating below alert levels 4, 3, 2 and 1 than estimates provided by the Treasury in April.
But the analysis was at the “same stage” as previous OECD estimates, the Reserve Bank said.
In positive development for the economy, Statistics NZ reported that New Zealand exports increased 3.3 percent to $ 1.18 billion during the week to April 29, the same week a year ago.
That was despite the country being at level 4 blocking for most of that week.
Imports fell 28 percent to $ 834 million.
Not for syndication
An excellent kiwi harvest has helped keep New Zealand’s trade balance firmly in the black.
The figures are preliminary, but they coincide with previous releases of Statistics NZ suggesting that strong exports and agricultural prices, fueled by an excellent kiwi harvest, are helping to keep the country’s trade figures healthy.
New Zealand statistics also released unemployment figures showing the job market was in good shape before the level 4 closed.
Seasonally adjusted unemployment rose to 4.2 percent in late March, from 4 percent in late December.
ANZ said those figures painted a positive image, but had been overtaken by events.
“The reality is that lives and livelihoods are significantly affected by the Covid-19 crisis, and the job market is deteriorating,” he said.
