Lockdowns are hard, but rewards are worth it

5:29 pm on 12 August 2020

Opinion - Auckland is back in level 3 lockdown and the rest of the country in level 2. Initially for three days, but could be longer depending on how quickly the original source and spread can be identified.

Piggybank wearing surgery mask, concept of the impact on world Economy in a pandemic

Photo: 123rf

There is an economic cost to a lockdown - but the prize is bigger than the cost. The prize requires prompt public health action (movement restrictions, testing and tracing), compliance and fortitude.

Experience from the last lockdown

New Zealand went through a very restrictive lockdown from late March. The economy was severely stunted but rebounded to largely normal when restrictions were eased and there was no community transmission.

Consumer spending halved during level 3, electricity use was lower, there were fewer businesses advertising jobs, and fewer people flying. The longer the virus is in the community the bigger the economic costs. People also worked from home more.

Spending in some sectors made up for lost sales, others didn't. Some things like home improvements and buying clothes can move online or be postponed, and idled construction projects and manufacturing lines can be fired back up and catch up.

But there is no catching up lost sales of coffee or a beer at your local.

From an international perspective, New Zealand came through the lockdown better.

We experienced the same kind of fall in hours worked as UK, USA and Europe (10 percent in the June quarter) but job losses, employment, spending and mobility have all performed better.

Auckland and level 3

Tracking Auckland through the previous lockdown showed that it followed the same pattern as the rest of New Zealand, but was hit harder.

That is partly because Auckland has fewer essential service workers, a little over a quarter of all jobs compared to nearly a third nationally. About 245,000 of 883,000 jobs in Auckland are essential services.

Auckland also has more services jobs. Some, like hospitality and retail, are hard hit. Others like many business and professional services can continue to function remotely.

We estimate there was a 75 percent increase in working from home during the last level 3.

But for many businesses, this will be a blow. They need to prioritise keeping their staff and customers safe.

That done, the next three days will be a good time to assess your eligibility for government support programmes like the wage subsidy extension, the SME lending programme via the IRD, the government-backed lending programme through banks, and your bank manager.

Unlike the first lockdown, we have business experience and well-functioning support mechanisms in place.

The cost of community transmission

In other countries that did not experience the same level of elimination, movement of people and economic activity remained lower than normal.

For example, in the US, consumer spending was down 8 percent at last count, while New Zealand had been back to normal.

In a country like Sweden that did not impose official restrictions, people voluntarily reduced mobility but the death toll was high.

Community transmission has a high cost on the economy. Effective early restrictions on mobility in my view has a net benefit on the economy.

Aucklanders and all Kiwis resume their collective efforts to protect lives and livelihoods in coming days and weeks. The lockdowns are hard, but the rewards to eliminating community transmission are worth it.

* Shamubeel Eaqub is an economist at Sense Partners.