Liam Dann: We're getting better at this - Why this lockdown should cost less

Finance Minister Grant Robertson during his Crown Accounts announcement at the Treasury in Wellington. Photo / Mark Mitchell

Aucklanders are getting better at lockdowns and that will make this one less costly, economists say.

Last August – as Auckland went into Level three lockdown – ASB economists estimated that it would cost the economy about $440 million per week - or 0.15 per cent of annual GDP.

But ASB has revised that view down on the basis of the strong rebound through the last quarter of 2020.

"These estimates were derived from estimating how much of the economy was not permitted to operate and didn't take into account any potential for post-lockdown catch-ups activity," ASB chief economist Nick Tuffley says.

"This time around we think the GDP impact could be slightly less than half that given how NZ adapted in the last lockdown."

"NZ GDP rebounded by a more than expected 14 per cent in the September 2020 quarter even while spending a chunk of the time under restrictions."

Without putting numbers on it, KiwiBank chief economist Jarrod Kerr agreed.

"The economic consequences of the Auckland level 3 lockdown last August were less severe than we initially feared because Kiwi business and households learnt to adapt to the new operating environment.

"Construction continued and activity moved online. The economy proved more resilient to these changes."

Writing this morning about financial market reaction (currency and bonds) BNZ's Jason Wong says it will "barely cause a ripple unless the restrictions are extended".

The strength of New Zealand's fiscal position highlights the economic merits of a cautious lockdown approach and also provides some reassurance that we can afford it.

The Government still has more than $10 billion in firepower to support the economy through a new outbreak - if it's needed.

That's money that is already accounted for.

Finance Minister Grant Robertson effectively has this up his sleeve, without the need for any new borrowing.

Whether he needs to use it remains to be seen.

In December Robertson announced a new Resurgence Support Payment to help businesses directly affected if we moved to Alert Level 2 or above for a week or more.

It also reiterated a commitment to the Wage Subsidy Scheme if there were regional moves to Level 3 or 4.

On top of the $10 billion, the Government's position is stronger than it expected in its half-year Budget update.

The latest Crown Accounts - for the five months to the end of November but released at the end of January - were $1.9 billion better than that forecast.

That's not to say the economic merits of locking down hard and early have not been contentious.

We never have the benefit of knowing how alternative scenarios would have played out and comparisons with other countries are messy.

But the risks - especially in light of the new more transmissible virus - are clearly asymmetric.

In other words, the cost of a widespread outbreak, or of the virus taking hold, are far, far greater than the cost of a short lockdown.

Of course, there is a cost to lockdowns and it will be severe for the businesses at the front line.

There will be a great deal of frustration and disappointment within the Auckland business community.

The impact of any lockdown, however short, is significant to those businesses that cannot operate at all - like event management, hospitality and tourism.

There's no dodging the immediate and direct fallout.

A macro-economic view smooths the impact and views it from the perspective of our collective wealth.

But a report by the International Monetary Fund in October compared 52 countries and concluded as much.

"More stringent lockdowns are associated with lower consumption, investment, industrial production, retail sales, purchasing managers' indexes for the manufacturing and service sectors, and higher unemployment rates," the IMF said.

But it rejects the argument that lockdowns are a trade-off between health outcomes and economic outcomes.

"This characterisation of lives vs livelihoods neglects that effective lockdown measures taken early during an epidemic may lead to a faster economic recovery by containing the virus and reducing voluntary social distancing," the report says.

"These medium-term gains may offset the short-term costs of lockdowns, possibly even leading to positive overall effects on the economy."