A prominent economist says the re-emergence of Covid in New Zealand means the "economy rests on a knife edge", but the China experience showed aggressive and successful cycles of virus suppression can work in limiting long-term damage.
Rodney Jones, of Wigram Capital, gained prominence in Government circles at the beginning of February and is credited by Finance Minister Grant Robertson as the first person to brief him on epidemiological and economic trends in China where the virus first emerged.
Jones said his close involvement with the official Covid response had waned in recent months as knowledge of how the virus spread and could be contained had developed.
"Now, what you need to do is clear. Back in February this was an unknown," he said.
Jones said the current virus response in New Zealand, a lockdown in Auckland and social distancing restrictions elsewhere accompanied by mobilisation of testing and contact-tracing resources, would last at least a full week but was hopeful the four positive cases detected this week were the country's only cluster.
Jones said New Zealand's rapid and restrictive approach was an outlier internationally - "they're responding at four cases, we haven't seen that happen anywhere else" - but thinks it would prove successful given China has detected and contained multiple fresh outbreaks in recent months.
"It's still contentious, and we won't know until this is all over what the right approach was. I think history will say China and New Zealand's approach is the right one. You have less economic scarring, less mental health issues, and it will have less effect on our long-term prospects," he said.
Jones said electronic spending data out earlier this week showed the benefits of a successful eradication campaign. Spending levels in July returned to their pre-Covid track after having declined by about 50 per cent during lockdown in April.
"The economy had rapidly normalised in July, as we saw in China. In China we saw a much faster bounceback than in other countries, and New Zealand was seeing similar," he said.
Recent data on trucking movements had showed a similar rebound, but there was a risk a sustained new outbreak could result in the fragile recovery being derailed.
Business confidence in Australia took a significant dent when Covid re-established itself in Victoria, and Melbourne has been locked down for a second time since early July.
Jones said a gradual stepping-up of restrictions in Victoria as the curve began getting steeper had proved counter-productive as it was only in early August - with the imposition of the equivalent of New Zealand's level 3 alert - when his firms' forecasts of case numbers began to flatten.
"By the time you see cases, you are already a week behind," he said.
Jones said Wigram modelling was less aimed at accurate long-term forecasts, and more as providing early warning of likely spikes in infection numbers.
The ability of New Zealand to respond to the latest outbreak was a vast improvement compared to March, Jones said.
"We're in a much stronger position, particularly how quickly we can respond. We probably let testing fall away a bit much, but it sounds like we can ramp it up pretty fast," he said.
"Nothing is perfect, no system is perfect, and we are under enormous pressure from returning New Zealanders. But I am relatively optimistic this strategy can work."