ANZ's Quarterly Outlook - titled Two Steps Forward One Step Back - is first in what will be a series of quarterly outlook reports from local economists wrestling with the uncertainties of the current outbreak.
BNZ economists also released an estimate today, forecasting a 7 per cent decline for Q3 GDP and followed by an 8 per cent rebound for Q4.
"While this might look like a full and fast recovery it barely gets the level of activity back to where it was in Q2, even with strong elements of catch-up spending in Q4," said BNZ senior economist Craig Ebert.
Both BNZ and ANZ has retain the "optimistic assumption" we get Covid under control relatively quickly, and can get back to alert level 1 as a base case.
The ANZ team - led by chief economist Sharon Zollner - acknowledges there will still be some sectors that get hit hard.
"The hospitality industry is the obvious one here – this industry has been through the ringer these past 18 months, missing out on international tourism, and missing domestic customers each time we go into lockdown," Zollner says.
"Government support will be helping to some extent, but we are still likely to see a lot of insolvencies as some firms that survived one round of level 4 may not be able to make it through another. So unfortunately, we will see job losses as a result of lockdown."
But the upside for any new jobseekers was that with the border firmly shut, lockdown will do nothing to ease the labour shortage that many businesses are struggling with.
"So those people who lose jobs due should hopefully be able to find employment before too long."
ANZ Bank chief economist Sharon Zollner. Photo / Dean Purcell
ANZ's base case is that the unemployment rate holds steady at 4 per cent in Q3 and Q4, but only because a drop in the participation rate is expected to offset a small down-tick in employment.
BNZ's Ebert takes a similar line, although he sees the unemployment rate record "nudge up to 4.3 per cent".
"While this is 0.6 per cent higher than we previously envisaged, there are risks it could prove a bit higher than that, even if the lockdowns don't prove more drawn out than our base case."
The headline hit to GDP was ultimately going to be a poor indicator of the future path of the economy, ANZ said.
"Much more important will be the fiscal response, and the impact on household balance sheets".
They note that household incomes only fell by 0.1 per cent in the second quarter of 2020 – despite a 10.8 per cent fall in production GDP.
"So households just picked up where they left off once the lockdown was eased".
There are some risks to this scenario, including fatigue setting in with consumers.
"A sustained decrease in confidence could see economic momentum fail to re-emerge once lockdown ends," ANZ said.
There were also signs of a weakening global economic outlook, with Australia's economy taking a hit from sustained lockdowns and China's recovery slowing.
But broadly ANZ believes the economy will stay strong enough for the Reserve Bank to proceed with interest rate hikes.
It expects the RBNZ will lift the OCR by 0.25 percentage points in early October, with follow-up hikes, bringing the OCR to a terminal rate of 1.5 per cent by August 2022.
"It is really important to highlight that is all contingent on the Covid outbreak looking well under control, even if not quite stamped out yet," ANZ's Zollner said.
"Despite high numbers of cases, there are good reasons to be cautiously optimistic."
