The New Zealand Treasury has released the outcome of possible COVID-19 “lockdown” scenarios.
The Government’s press release, inlcuding Treasury’s report is available here.
At one end, Scenario 1, New Zealand is at COVID-19 Alert Level 4 for the minimum four weeks, followed by Alert Level 3 for a month and then a combination of Alert Levels 1 and 2 for another 10 months. Global GDP growth is assumed to be 6% lower than the December 2019 Treasury forecast (while a variant, Scenario 5, contemplates an even steeper drop in global growth).
At the other end, Scenario 3, Alert Level 4 lasts for six months and Alert Level 3 for another six months.
A number of intermediate scenarios are also considered, where New Zealand moves between the various Alert Levels over short periods of time.
For March years, the economic impacts, compared to Treasury’s December 2019 forecasts, of the scenarios are:
|Impact on||Scenario 1||Scenario 3||Intermediate scenarios|
|Real GDP||Lower by 13.5% in 2021||Lower by 34% in 2021||Lower by between 15 and 27.5% in 2021|
|Unemploy-ment rate||9.5% by 2021, dropping to 4.5% by 2024||24.5% by 2021, dropping to 5.5% by 2024||Between 11 and 16.5% in 2021, dropping to 4.5 to 6.5% by 2024|
|Inflation||Between 0% and 1.75%||Between -0.75% and 1.5%||Between -0.75% and 1.5%|
|Nominal GDP ($b)||Lower cumulatively by $121 billion between 2020 and 2024||Lower cumulatively by $263 billion||Lower cumulatively by between $150 and $217 billion|
These scenarios assume no further support from Government. Treasury has modelled an additional $20 billion for Scenario 1 and a $40 billion addition for one of the intermediate scenarios.
For Scenario 1, this has the effect of reducing the impact on GDP from -13.5% in 2021 to -11.5%. It also results in a lower unemployment rate of 5.5% by March 2021 (c.f. 9.5%). The cumulative impact is that GDP (in dollar terms) is $25 billion higher with the additional spend.
For more on the Government’s fiscal response to date and how your business can navigate COVID-19, please refer to our dedicated COVID-19 website.
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