A new global report praises New Zealand's "swift and decisive" response to Covid-19 but says the hit to the economy will be worse than most other advanced economies.
Early on Thursday (NZ time) the Organisation for Economic Co-operation and Development (OECD) released its latest report which said the global economy was "on a tightrope".
The organisation, made up of 37 leading economies, said Covid-19 had triggered "the most severe economic recession in nearly a century".
The report paints two scenarios; one where the current wave of infections is the worst of the crisis and another where another wave of infections hits before the end of the year.
In either scenario New Zealand is likely to see a sharper economic contraction than most other members of the OECD, and a much larger hit than Australia.
Even if a second wave of global infections is avoided, the OECD predicts the New Zealand economy would shrink by 8.9 per cent in 2020, with only eight of the OECD's 37 members contracting more.
If the global economy does see a second wave, New Zealand's economy would shrink by 10 per cent, with 11 OECD economies taking a bigger hit.
In both scenarios, all of the economies expected to see a larger contraction than New Zealand are in Europe.
Australia meanwhile is expected to see a 5 per cent contraction this year or a 6.3 per cent hit if there is a second wave, with only South Korea facing a smaller hit.
While the OECD said the lockdown "successfully contained the virus outbreak, saving lives and allowing the economy to reopen faster" it warned that the severe confinement brought many sectors to a sudden stop describing the hit to the economy as "severe".
"In the first half of April, New Zealanders cut back visits to retailers and recreational areas more than in any other OECD country with available data," the report said.
"As the economy begins to recover, many workers will be jobless and numerous firms prone to insolvency."
Finance Minister Grant Robertson said the OECD's forecasts were finalised before New Zealand declared zero active cases and moved to alert level one.
"However, they show they show the importance of not allowing a second wave of infections, which could see 2020 [gross domestic product] fall 10 per cent, instead of 8.9 per cent, according to the OECD's 'double hit' scenario."
Robertson said even the double-hit scenario was worse than Treasury's forecast of a 10 per cent hit, which was finalised in April.
National said despite being in a better position to manage the crisis, the economy would take a bigger hit than most.
"There is a tendency to say 'we've come through this economically better than most', and that simply isn't borne out by the figures, by any stretch," National's finance spokesman Paul Goldsmith said.
"The focus now has to be to have more of a plan than just industrial scale spending fuelled by debt and waiting for a vaccine."
Act leader David Seymour said the economic and fiscal impacts of the Covid-19 crisis "are going to be much greater than the Government has revealed to New Zealanders".
Rather than "aim for perfection on a single health measure" the Government needed to create a smart border which allowed travel to resume to Australia and the Pacific Islands.
"The biggest killer of economic activity is uncertainty and a lack of strategy. The Government should be clearly laying out its conditions, if not it's timeline, for reopening the border."
The OECD said New Zealand's recovery would be "gradual" and vulnerable to a new wave of infection.
"A surge in unemployment following the scaling back and subsequent termination of the wage subsidy scheme, together with a large reduction in net inward migration and a loss in housing wealth, will hold back private consumption," the report warned, predicting that business investment would be "subdued".
If a second wave of infections was avoided, unemployment may not reach 8 per cent, but in the event that it does, the OECD warned it would hit 10 per cent this year.
"Goods exports will increase on the back of strong global demand for food but tourism exports will be slow to recover because the border is likely to remain closed to foreign visitors until at least early 2021," the report said.
"On the other hand, tourism and travel would get a substantial boost if travel between Australia and New Zealand is allowed before the more general opening of the border."
The report said the Government should expand its testing, tracing and isolation infrastructure "to keep the virus at bay without the need for costly distancing measures, notably another lockdown".
If the Government needed to restart the wage subsidy scheme "it should spread payments to ensure that they are made only if employees continue to be paid, and also increase the share of costs borne by employers over time to reduce the risk of workers being trapped in jobs that are no longer viable".