26 Aug 2020

NZIER predicts three-year recovery period for economy following Covid

6:57 am on 26 August 2020

The New Zealand Institute of Economic Research (NZIER) is predicting it will take three years for the economy to recover from the effects of the Covid-19 pandemic.

A closed sign hanging in the glass doorway of a shop in the UK

File photo. Photo: 123RF

In its latest quarterly predictions, the institute said it expects the effects of Covid-19 will persist until 2023, as the latest outbreak has highlighted the likelihood of more lockdowns which has dealt a blow to business confidence.

"The new restrictions have hampered the recovery in activity seen in recent weeks as New Zealand moved down alert levels. Although retail spending had rebounded in the months following the relaxation of lockdown restrictions, the recent increase in spending has yet to make up for the decline experienced during the lockdown," NZIER principal economist Christina Leung said.

Leung said businesses were typically more cautious heading into a general election but Covid-19 had heightened uncertainty.

"We expect businesses and households will remain cautious about spending and investment over the coming year."

The Institute said it forecasted unemployment would peak at 7 percent over the next three years as a result of the coronavirus.

Leung said its forecast may seem low but that's because the number of people out of work looking for a job - which unemployment is a measure of - will drop off.

She said this was a result of what is called the "discouraged worker effect".

"Given that with the lack of [current] job opportunities displaced workers will simply just drop out of the labour force as they give up looking for work.

"That decline in the participation rate will help to cushion some of that rise in the unemployment rate."

Leung said whilst it was expecting a net job loss of over 240,000 people over the second half of this year, not everyone would be reflected in the unemployment data.