The arrival of Omicron is set to disrupt and slow economic recovery, according to one prominent economist.
A mostly deserted Queen Street in Auckland during the level 3 lockdown last August. Photo: RNZ / Amy Williams
Analysis from economic consultancy Infometrics suggested the red traffic light was expected to knock between 2 to 3 percent from growth, costing around $190 million per week.
Brad Olsen Photo:
Its principal economist Brad Olsen said the country was hoping for a longer recovery period from Delta, but Omicron will affect that.
"We are expecting that Omicron will make our economic figures relatively volatile again after a much firmer and much more upbeat December quarter moving out of the severe restrictions and level four that we saw in the September quarter of 2021.
"Moving through to the first quarter of 2022, we do expect to see a slight decline in economic activity because of those restrictions that will play out across the economy and also because of the change in how people spend and just how much they are spending."
Olsen said a de facto partial lockdown might occur as people intentionally limit how much they go out.
"The hassle of going out will morph into a hesitancy of going out as the risk grows of contracting Covid-19 or having to isolate for an extended period.
"An artificial lockdown might occur, as Kiwis intentionally limit how much they go out," Olsen said.
Reserve Bank likely to take aggressive action
Olsen said with the Omicron disruption and high inflationary pressure, the Reserve Bank could be forced to be more aggressive.
"Infometrics is expecting and forecasting a 50-basis point increase (of the Official Cash Rate) needed to be taken by the Reserve Bank when it comes to their February Monetary Policy Statement," he said.
The OCR currently stands at 0.75 percent.
"Given how hot the economy has been running there is very little spare capacity, which is going to exacerbate some of the issues we're likely to experience throughout the Omicron outbreak."
Olsen said the central bank needed to look at the evidence in front of it, which was a "very hot" labour market and high prices.
"Those are coming forward and we need to recognise that the New Zealand economy has been better positioned to weather the storm of Covid throughout the last few years.
"So far the Reserve Bank has been placing too much focus on that caution of what might come rather than focusing on what's right in front of them and the pressures that New Zealand is currently under."