Lockdown measures so far have removed 3 years of GDP growth, with New Zealand’s GDP falling back to a similar level to 2016, according to new NZIER modelling. The government’s fiscal response will help mitigate that impact and new lockdown measures will be important for preventing further health and economic impacts.
New Zealand’s annual GDP faces a reduction of up to $21 billion due to COVID-19 social and economic restrictions under lockdown measures imposed in 2020. The economic impacts of COVID-19 go beyond tourism to affect the wider economy more than anticipated (Figure 1).
While the tourism sector is the most affected, industries that support the tourism sector, such as accommodation, food and beverage services and transport (mostly air transport) industries, are also significantly hit by the isolation measures and travel ban.
We found that output also decreases, although less sharply, in industries that are not directly reliant on the tourism sector (e.g. other primary sector and manufacturing, construction and other services). The output decrease in these industries is due to the decrease in available labour and capital immobilised by the implementation of restriction measures.
Figure 1 New Zealand’s real GDP recovery path and impacts on different sectors
While real annual GDP loss (in percentage terms) is the highest in tourism-centric regions (Queenstown-Lakes, Rotorua and Auckland), all regional economies of New Zealand are expected to contract due to the direct and flow-on effects associated with the COVID-19 restriction measures.
Over the longer term, as economic impacts remain, there will be a need for greater flexibility to allow for both physical and human capital to be redeployed toward surge industries. Focusing on investment that builds physical and human capital to foster an environment where the New Zealand economy can adapt quickly to changing circumstances will be most conducive to a sustainable recovery.