Covid-19: Economic outlooks for Omicron feature both dread and a hint of optimism
Updated: 17 hours ago
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Read on the article below to understand how Omicron will affect your business ...
Having Omicron circulating in the community will hurt the New Zealand economy, but by how much will depend on the size and duration of the outbreak, economists say.
New Zealand is in day four of being in the red setting of the Covid-19 protection framework, also called the traffic light system, after Omicron cases with no clear link to the border were found in the community.
Just how long the red setting will be in place is unknown, but already it is having an economic impact, with a wide range of events cancelled due to restrictions on gathering limits and hospitality.
In a research note titled “The battle begins”, BNZ economists said, while it was difficult to compare the old and new Covid-19 management systems, the red setting was more like alert level two or one in the sort of impacts it had on economic and social life.
“Still, red does impinge business (and personal) activity in important ways, largely through gathering limits,” the note said.
“At the same time, don’t underestimate the potential for reported Covid cases numbers in the weeks ahead to disturb a lot of the populace, to the extent there’s an aversion to getting out and about.”
Omicron would have a big economic impact by likely side-lining “a great number” of workers for a period of time, it said.
High rates of absenteeism would compromise economic activity and intensify cost and inflation pressures, it said.
The Government has said, at this stage, wage subsidies and resurgence support payments were off the table in the event of an Omicron outbreak but leave support schemes would be available.
Finance Minister Grant Robertson on Sunday said costs for the leave support scheme could reach at least $50 million per week with 350,000 people self-isolating.
This was based on the assumption of 25,000 Covid-19 cases per day, he said.
The Government could afford to pay for the leave support scheme, he said.
"And to be perfectly honest we can't afford not to do it," Robertson said.
To limit the spread of Covid-19 people needed to stay home and isolate if they were sick, he said.
“That's how we limit the spread and so, therefore, it could be a much worse situation if we didn't.”
He said New Zealand had one of the strongest government bank balances in the world and its level of debt was lower than what had been forecast.
"We will have the resources we need to support New Zealanders."
A spokesman at the Treasury said the remaining unallocated amount in the Covid-19 Response and Recovery Fund was $4.3 billion.
He said there was enough in the fund to manage the immediate impacts of the Omicron outbreak and the Government had the option of adding to the fund if required.
BNZ’s report said government support measures would not be as generous as the wage subsidy and “many firms will simply have to tough it out, until red becomes orange”.
It said while the impact on GDP was hard to gauge it seemed reasonably clear that Omicron, by dint of its transmissibility, had the potential to significantly impact the availability of staff.
“Brace for a rash of absent workers, in other words. Of course, there is already a severe shortage of workers in the New Zealand economy.”
Kiwibank’s economics team said, depending on the extent of the outbreak, Omicron was likely to impact business confidence further and worsen the strain on an already tight labour market.
There was already heightened uncertainty amongst businesses, and their willingness to invest had pulled back, it said.
Absenteeism may cause business confidence to take another hit, it said.
Infometrics principal economist Brad Olsen said the Omicron outbreak would disrupt New Zealand’s economic recovery and restrict economic activity by way of limits on events and hospitality activity, high levels of workers off work, and difficulties finding some goods.
At red, restrictions on activity were expected to keep GDP, a measure of economic growth, 2 per cent to 3 per cent below usual levels, costing $190m per week, he said.
“But the hit to the economy could well be larger, with difficulties keeping workplaces operational with enough workers and materials further restricting output.”
Estimates suggested that up to 12 per cent of the New Zealand workforce could be absent from work, with wide variations possible, he said.
Examples from Australia showed considerable challenges for transport, logistics, and supermarket operations, he said.
“Fewer people being at work, picking and packaging goods, driving them around, and getting them in-store, will see supply lines caught short.”
Supply chain disruption would be exacerbated by high demand for some goods, particularly at supermarkets, he said.
“New Zealand will need to carefully manage supplies of critical goods to ensure everyone gets what they need and that New Zealand doesn’t run out of important items.”
Evidence from the United Kingdom suggested medical supplies, pasta, and toilet paper appeared vulnerable to high demand but reduced supply, he said.
The leave support scheme could cost $210m a week at the peak of Omicron, he said.
People’s participation in the economy was set to drop as Omicron spreads, not just because of being sick, he said.
People would be hesitant to go out as the risk of contracting Covid-19 or having to isolate for an extended period grew, he said.
An “artificial lockdown” might occur, as people intentionally limit how much they went out, Olsen said.
Overseas data showed a 25 per cent decline in restaurant activity from normal levels as Omicron spread, according to OpenTable, he said.
ASB’s daily alert for Wednesday said details around the Government’s plans for phases “two” and “three” of the outbreak would give a sense of how similar the approach would be to what was pursued in Australia.
Commonwealth Bank of Australia estimated about 4 per cent of the Australian population had been isolating at home during the peaks of the Omicron outbreak across the Tasman.
That would translate to up to 200,000 New Zealanders isolating at a given time if New Zealand experienced a similar per capita level of cases, it said.
Early signs in Australia suggested spending was only 3 per cent lower during the outbreak than it would otherwise have been, but summer was a volatile period for forecasters at the best of times, it said.
By comparison New Zealand’s alert level 4 lockdown last year resulted in card spending dropping 20 per cent over August, it said.
ASB’s daily alert for Tuesday said a surge in New Zealand case numbers was to be expected if the outbreak followed patterns observed overseas.
While Australia’s outbreak caused huge disruptions it also provided cause for some optimism with “clear signs” the Omicron wave there had peaked, according to Australian Health Minister Hunt, ASB said.
“If this is the case, the economic hit from Omicron is likely to be small and short-lived”
On Monday ASB said there would be a huge number of infections, widespread disruptions and pressures on New Zealand’s health system, and these were what would dominate the economy over coming months.
“This time around, government-set restraints, and their impact, will be very light.”
The red setting allowed many activities to carry on for the vaccinated, it said.
The main economic impacts were going to come from worker absenteeism and people’s behavioural shifts, it said.
“In the past, the Government essentially laid out what was deemed too risky to do. Now, people will be making their own risk assessments about what they feel comfortable doing during a large outbreak, and spending patterns may differ.”
Preliminary findings from Australia also suggested that the economic impact of Omicron may not be as deep as the Delta outbreak, it said.
Commentary from Westpac’s economists said Covid-19 was going to continue to throw curve balls at the economy over 2022.
As Omicron took hold its prevalence was likely to exceed anything that New Zealand had seen so far in the pandemic, it said.
Some insights could be gleaned from the experience in Australia where case numbers surged to the point that testing capacity was unable to cope and hospitals were overwhelmed, it said.
In an economic sense, Omicron had also taken Australian businesses by surprise, particularly with essential services like food struggling to cope with sick or isolating workers.
“From the New Zealand perspective, to date essential industries like food have been a source of stability and economic strength.
“And while we don’t think that is going to change at a high level, we do expect Covid to continue to throw up fresh challenges over the course of the year.”
Nathan Penny senior agricultural economist said the Westpac McDermott Miller survey of households showed that regional economic confidence dipped overall in the December quarter.
Confidence slid in eight regions, while three regions posted a lift in confidence.
The dip in confidence was most noticeable in regions that had been until recently relatively happy with their freedoms, he said.
“We suspect that reflects the looming prospect of the omicron variant spreading throughout the country, and thus putting at risk the freedoms that those in the regions have become accustomed to.”
Whereas the prospects for Auckland households looked to be improving, he said.
While still in negative territory, confidence lifted by 3 percentage points over the quarter.
The improvement coincided with the region’s Covid-19 restrictions being relaxed, in particular the ability to travel, he said.
“Whether Auckland builds on these gains, however, remains to be seen.”
With the country in red and Omicron in the community, confidence was likely to prove fragile, he said.
“In short, with Auckland likely to be at the epicentre of the Omicron outbreak, Auckland’s bumpy Covid ride is set to continue.”
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