Covid 19 Delta outbreak: Liam Dann: Level 3 brings big drop in economic cost ... and a lifeline for business

A shift in alert levels offers hope to thousands of Auckland businesses. Photo / Alex Burton

OPINION:

Aucklanders cheered the return of takeaways but for many businesses the decision to shift lockdown levels means much more.

For some it means survival.

Moving to level 3 significantly diminishes the daily cost to Auckland's economy.

The latest Treasury estimates are that the economy can function at between 85 and 90 per cent of its normal capacity in level 3 - compared to 70 to 75 per cent capacity at Level 4.

In other words, the raw cost for Auckland, in lost output per day, drops from around $100 million to somewhere between $33 and $50 million a day.

Averaged out across the whole economy the hit to GDP becomes considerably softer.

But let's not pretend it was the macro-economic costs of lockdown weighing on the Government as it balanced risks today.

The Crown - with its billions of borrowing locked in for years ahead - had capacity to stay at level 4 longer.

Many cash strapped local businesses simply didn't.

The increasingly marginal costs of lost output can be averaged across the whole economy, and across time, to flatter the strength of the economy when we count GDP points.

But that doesn't count the human cost and loss to our communities as small business failures mount.

Today's decision must have been a line-ball call for the health experts.

But it provides a sense of progress, and some hope - an antidote to despair that was fast setting in for many Aucklanders.

So businesspeople will be breathing a sigh of relief - even as they now contemplate the huge challenge of operating safely at level 3.

Fast-food retailers will be back, but behind the scenes the revival of business activity runs much deeper.

Aucklander's will soon be able to get their takeaway fix. Photo / George Heard

Auckland construction is back, a crucial part of plans to solve the country's other economic crisis - housing costs.

And thousands of retailers that fell outside strict definitions of "essential" are back.

Even if that just offers the chance to get a few workers back into the warehouse, to ship goods and get a part of the online shopping action, it gets them back in the game.

Throughout lockdown, economists have remained upbeat about New Zealand's medium-term outlook.

Most still forecast that the Reserve Bank to lift interest rates in October to address inflation and cool an overheated economy.

Markets have stayed bullish. The dollar has stayed strong.

Big business has been considerably more confident than in last year's lockdown and has retained staff.

The economists have been increasingly reluctant to talk about 'lost output' on the basis that we'll see another post-lockdown rebound in the last quarter of the year.

Estimates are that we'll see the nation's GDP slump by around 7 or 8 per cent this quarter before bouncing out to make up all the lost ground.

But all of this good economic news has been growing increasingly redundant for businesses grappling with debt or rent or rates, power bills and other fixed costs that have continued to mount and undermine the viability of their operations.

If you can't survive the lockdown then there is no V-shaped recovery.

The Auckland Business Chamber says a snap survey of businesses this morning showed 80 per cent of businesses can get back to work under level 3 conditions.

But it warned that just 10 per cent would be operating at 100 per cent capacity.

Some 50 per cent would be operating only at half speed and a further 5 per cent would be operating at 75 per cent.

It was a reminder that the big economic numbers can hide a harsh reality for many businesspeople.

That reality remains harsh - but today's news will offer some light at the end of the tunnel.