FXStreet notes that community transmission of COVID-19 has re-emerged in New Zealand. The Government has responded by raising the COVID Alert Level for Auckland to 3, while the rest of New Zealand is at Level 2. Nobody knows how this is going to play out, so economists at Westpac discuss the economic implications of three possible outcomes. 

“If the Alert Levels are not raised further, and things return to normal within a couple of weeks, the economic impact will be relatively small.  for each week that Auckland is at Level 3 and the rest of New Zealand at Level 2, about $300m of economic activity is foregone. This equates to 0.5% of quarterly GDP. But, during a brief lockdown, a higher proportion of that lost activity would be recouped shortly afterwards, so the actual lasting economic damage would be significantly smaller than this $300m figure. We would continue to forecast an increase in the unemployment rate from today’s 4% to a peak of 7%.”

“ If there was another lockdown, there would obviously be another period of curtailed activity, so the September quarter would look similar to June. We estimate that this time, economic activity would rebound very quickly to around 5.5% below our pre-COVID forecast. Our unemployment forecast would peak at about 8% in this alternative scenario, compared to a peak of 7% in our current forecasts.”

“If New Zealand loses control of the virus, that would be a game-changer for the economy. If New Zealand goes into another successful lockdown, it will suffer only incremental additional economic damage, whereas if the virus gets out of control the economy would take a much bigger hit.”