Economists have labelled the government's wage subsidy scheme an expensive exercise in delaying the inevitable.
Photo: RNZ / Samuel Rillstone
Infometrics' July forecast expects unemployment to edge above 8 percent this year and peak at 9.7 percent next year.
"The government's wage subsidy scheme was an appropriate immediate response to the pandemic, shoring up businesses' cashflow through a period of restricted activity," Chief forecaster Gareth Kiernan said.
"However, the scheme is now simply an expensive exercise in delaying inevitable job losses. For the tourism sector, it is clear that the borders will not open again by September when the scheme ends [and] we expect to see further substantial job losses as various support mechanisms end later in 2020."
However, the latest forecast did have some bright spots - house prices were now expected to only fall by 6 percent, as opposed to 11, and a willingness to travel domestically would keep more tourism-related businesses buoyed.
"This freedom and willingness to travel is likely to prevent job losses being as catastrophic as initially expected."
Kiernan said given global uncertainty and the failure to contain the virus, New Zealand's exports sector had some question marks over it.
"Infometrics sees further downside risks emerging for the world economy given the second wave of Covid-19 infections being experienced by some countries and the ongoing increase in international case numbers.
"New Zealand's agricultural base suggests demand for our exports should hold up reasonably well, but prices are still likely to be dampened by difficult economic conditions overseas."
Overall, he said, crunch-time was looming and there was a lot of economic hardship to work through.
"We forecast New Zealand's GDP to still be 4.8 percent smaller than its pre-Covid size by the end of next year, and that GDP will not surpass its 2019 level until 2023. This recovery will be much more of a long, hard slog than general sentiment currently suggests."