Queenstown's shops, restaurants and tourism operators could be boarded up by the time overseas visitors can return to the tourist resort, the district's mayor fears.
New research commissioned for the Treasury shows Otago and Southland are among the four regions expected to be most negatively affected by Covid-19.
Otago was clearly the worst impacted due to the reliance of Queenstown on now almost non-existent overseas tourism.
Queenstown Lakes Mayor Jim Boult said the research came as no surprise, and businesses in Te Anau, Wanaka and Queenstown were all hurting.
"Events in Australia and closer to home in the past couple of months have put paid to any hopes of a transtasman bubble in the short term and there are some long faces around town," he said.
"I spoke to someone this morning who said they were losing staff due to uncertainty about their stability going forward.
"They want to work and they want to be busy but things are really, really quiet."
Although the report predicted Queenstown's GDP could rebound with a 6.4 per cent increase between 2022 and 2025, Boult feared many businesses might not survive to share in the region's recovery.
"If things carry on the way they are going, we are going to have boarded-up shops, closed restaurants and inactive tourism businesses, and when tourists do finally come back, we are not going to have anything to sell them.
"We won't have the people, we won't have the businesses."
Boult said he had been speaking to government ministers, particularly Tourism Minister Stuart Nash, about the region's plight and the possibility of more financial support for businesses.
"If they can at least keep going in the short term with reduced staff, it might be possible to ramp up again when the time is right ... they haven't told me no yet and I am going to keep on pushing."
The research, commissioned by the Treasury from Infometrics, also predicted that the South might not start to recover from the economic shock caused by the pandemic until after 2025.
Southland was predicted to be particularly slow to show improvement due to the anticipated closure of a major regional employer, the Tiwai Point aluminium smelter.
Broken down by regional council area, Otago was predicted to experience a 3.3 per cent drop in GDP from March 2020 to 2022 — the highest in New Zealand.
It was also predicted to bounce back strongly with a 3.4 per cent GDP rise from 2022 to 2025, although that was dependent on overseas visitors returning to the region.
Southland's predicted GDP drop of 1.9 per cent ranked fourth-highest in New Zealand, and its expected 1.5 per cent recovery was the joint second-lowest.
"The likely closure of the smelter will have negative flow-on effects for the broader regional economy and constrain employment and economic growth," said Boult.
"It is also worth emphasising the importance of international tourism to the Fiordland area of Southland."
Reducing the data to territorial authority showed the impact on the South in starker detail — the anticipated 24.8 per cent drop in the Queenstown Lakes district's GDP was far and away the highest in the country.
Tourism accounted for 56 per cent of the region's economic activity before Covid-19, the report said.
"Although increases in domestic travel have helped pick up some of the slack, spending by New Zealanders will not come close to filling the hole caused by border closures," Boult said.
"Queenstown Lakes' workforce is significantly overrepresented in accommodation and food services, construction, retail trade and arts and recreation services."
Boult said domestic tourism had been a welcome confidence booster for Queenstown, but after an initial surge in business, visitor numbers had dropped away to near nothing after people had returned to work.
"There was a sugar hit over Christmas and New Year but since the second week of January, it has simply died.
"Long weekends like the one we have just had certainly put a shot into it, but I've had a ring around a bunch of tourism operators and restaurateurs today and there are just no bookings at all placed.
"We are in for a very cold rest of 2021."
The Mackenzie district ranked second with a 19.8 per cent fall, and Southland was eighth with 2.9 per cent.
Invercargill city's percentage drop was expected to be 2.7 per cent and Central Otago's was 1.4 per cent.
Dunedin was tipped for a moderate 0.3 per cent fall.