The second Covid-19 outbreak has not stopped the economy outperforming expectations from May, ASB economists say.
In its latest quarterly outlook, ASB has revised up its GDP and unemployment forecasts.
"Our NZ forecasts look slightly better now than they did back in May," ASB chief economist Nick Tuffley said.
"We expect the economy to shrink around 5 per cent when comparing the end of 2020 with the end of 2019, an improvement on the 6 per cent decline we had anticipated back in May."
The strength of the bounceback after the first nationwide lockdown still managed to outweigh the impact of the Auckland lockdown in August.
ASB estimates the August lockdown could take up to 8 per cent off New Zealand's weekly GDP – and, all up, the August outbreak is likely to take about 0.5 per cent off annual GDP.
"With New Zealand now more wary of the possibility of future outbreaks, we expect a more cautious attitude from consumers and businesses going forward," Tuffley said.
"Nonetheless, our economic growth forecasts are still stronger compared to our forecasts finalised in May. We now expect the unemployment rate to peak at 7.5 per cent, compared to 9 per cent back in May.
That was in part because of the quick return to alert level 1 but also because of the extensions of the wage subsidy, he said.
ASB also sees the housing market holding up stronger than expected - now forecast to fall 3 per cent as opposed to an earlier forecast of 6 per cent.
"People's behaviours are shifting and interest rates are getting ever lower – and will continue to if the RBNZ does indeed cut the OCR to a negative rate as we now expect," Tuffley said.
Another pocket of strength has been New Zealand's export sector.
The Terms of Trade and New Zealand goods export prices hit record highs in the June quarter.
In particular, fruit exports had performed well and meat and dairy prices had recovered some of the declines seen earlier in the year, Tuffley said.
"China has weathered the pandemic relatively well and is likely to remain a source of support for some of NZ's commodity exports," he said.
"We expect NZ's food-related export earnings are likely to cushion the impact of weaker global economic demand on the broader New Zealand export sector."
New Zealand's main political parties were committed to continuing with the strategy of elimination of Covid-19, Tuffley noted.
That meant the likelihood of New Zealand's borders being opened up in any large-scale manner was some time away.
"In the meantime, NZ needs to work on ways to fill the estimated 5 per cent of GDP gap that closing our borders (and reduced global travel appetite) have created," he said.
"New Zealand's economy and society are irrevocably on changed paths as a result of the pandemic and we need to adapt to the new reality."
The elimination strategy also meant "doing our utmost to ensure that its implementation is as effective as possible and takes account of the economic toll it is taking".
Despite the relative resilience of the economy, ASB retained a cautious outlook for growth over 2021 and 2022.
"Over 2021, the realities of the weaker labour market are likely to catch up with consumers, impacting spending appetites, and many firms may remain reluctant to invest while the uncertainty of the pandemic continues to weigh," Tuffley said.
"Even once a vaccine is developed, it will take some time before it can be manufactured and distributed in quantities that will allow border restrictions to be materially relaxed."
"In our view, it will be 2023 before the New Zealand and global economies properly enter
recovery mode and allow for above-average rates of GDP growth."