New restrictions in New Zealand's largest city could impact a quarter of a million workers, with the hit slowing the rest of the country's economy.
On Tuesday the Government announced Auckland would move into Covid alert level three restrictions until at least Friday, with the rest of the country moving to level two.
Brad Olsen, senior economist at Infometrics said that the restrictions placed on Auckland would disrupt much of its workforce.
"By our estimate, around about 28 per cent of Auckland's workforce cannot operate under level three, that's about 250,000 jobs. We're likely to see that number of people not operating," Olsen said.
Based on the spending patterns seen across New Zealand last time the country was under alert level three "you're looking at around 60 to 69 million dollars less being spent over the next three days alone [in Auckland] under the level three lockdown," Olsen added.
The restrictions announced on Tuesday evening alone could knock around 0.2 per cent off New Zealand's economic output in the September quarter, Infometrics estimated.
"The question is at the moment, both for Auckland and the rest of the country, do we see any shift to level four in the near term, do we see basically the extension of level three for an extended period, or even level two.
"But at the moment what I think it points to is this is going to hit businesses just as everyone thought things were getting better … The big highlight is, it's not over and it won't be over for a long, long time."
But if the lockdown was limited to three days any impact on GDP would be small, said ASB senior economist Mike Jones.
It was still too early for anyone to be reassessing economic views and forecasts on the back of the latest news, Jones said in a report this morning.
"The Auckland lockdown does represent an unwanted re-injection nz of uncertainty for businesses and consumers though, and the associated caution could slow the recovery a little," he said.
But it was important to keep the news in context.
"Auckland accounts for 38 per cent of NZ's GDP and around 33 per cent of
employment," he said. "Previously, we estimated around 80 per cent of economic activity can still occur at Alert Level 3."
"Assuming the lockdown is short-lived any impact on GDP would be small."
The New Zealand dollar fell overnight but credit markets were largely stable.
"Financial market reaction to last night's news has been negligible," Jones said.
The cleanest measure of the lockdown impact was the NZ dollar/Aus dollar cross-rate, he said.
The kiwi fell about 0.2c to A92c.
It was also down about 0.4c against the US dollar to US65.80c.
The Reserve Bank is due to deliver its latest monetary policy statement at 2pm today with a press conference at 3pm.
At this stage this would still run as scheduled a spokesman said.
Economists had been expecting the bank to keep the official cash rate on hold at 0.25 per cent but were split on whether it would move to increase its quantitative easing programme.
"The return of community transmission on our shores moves the risks dial even more in favour of our view that the RBNZ will look to do more rather than less, signalling they will do whatever is necessary to support the economy," ANZ economists said this morning.
"Attention will also be on what the RBNZ says about other tools. We think they will keep their options open on all fronts, adding to dovishness."
A slowing of activity in Auckland would hit activity elsewhere, Olsen said.
"Not that we have different regions operating under different levels, you've got to remember just how important Auckland is, just from an economic point of view. Not only is it a good third to 40 per cent of the nation's economy, but at the same time there are such critical linkages there that you could well see a slight slowing in activity across the rest of the country just because Auckland's not operating at its normal capacity."
Compared to the first lockdown, there was also a question of "the economic ramifications of whether or not people abide by the lockdown in the sense that if they don't and they have to extend it for a longer period, that of course that causes longer and further economic damage".
Independent economist Cameron Bagrie said the latest restrictions - which he doubted would only be in place this week - showed that parts of the country may have brushed off the impact of Covid-19 too quickly.
"There was a mismatch between the reality and the risks versus the way people were behaving over June and July," Bagrie said, with figures showing a major pick up in spending and a resilient housing market, suggesting consumer confidence had bounced back.
"There was a little bit more euphoria than was justified by the risk profile that this thing could come back, so that fact that this thing has come back, I think, is a big wake up call for a lot of people."
While the economy had shown signs that it was picking up quickly, Bagrie said coming out of lockdown Auckland was showing signs that it was behind the rest of the country.
"We were in this recovery sweet spot, the bounce after the first lockdown, but the laggard was actually Auckland. Job [advertisements] in Auckland were still well off the pace [of pre-lockdown]. We were seeing a big rise in the number of commercial leases that were coming on the market, in Auckland" as companies gave up space as their workers opted to work from home, or companies shed staff.
Auckland was already vulnerable to a downturn because of high household debt levels in the city, he said.
"To get on to the Auckland property market, you were also having to take on more debt, and the Auckland property is, apart from Queenstown, is at the highest end of the spectrum. So the last region we want to be at the epicentre of another shock is the region that was vulnerable heading into it."
Bagrie said while many companies had managed to cope with the first lockdown, it was unclear whether they would have the financial capacity to cope with another.
"We're still in a bit of an information vacuum at the moment, but I think this lockdown is really worrying as to what the economic ramifications could be on the other side. Businesses had the firepower to absorb one. A second one, how long this one goes [on for], we don't know, but I don't think it's going to be two to three days … Businesses, I don't think, have got the same capacity to absorb round two."
While Finance Minister Grant Robertson has held back $14 billion from his initial Covid-19 recovery fund, Bagrie said this would mean much of the country's capacity was being used on day-to-day economic needs, rather than rebuild.
"We're blowing all our ammunition now on the response," Bagrie said.
"That's the economic imperative because you're stabilising potential downside. But there's a big difference between stabilising downside versus driving recovery. The recovery's been very short and sharp, but we're going to see another dip."
Strong export prices are helping to drive the economic recovery.