The bounce back from Lockdown 2.0 has begun, but the overall recovery has been restrained by Auckland remaining at higher alert levels. Auckland’s move to Level 3 is welcome news, with a larger amount of economic activity to take place. But risks remain for the pace of New Zealand’s rebound, with supply chain issues and the need to balance health and economic priorities creating a difficult set of choices.

Card spending activity from Marketview shows a strong bounce back across New Zealand (excluding Auckland) after the moves to Level 3 and then Level 2 Delta (2Δ). Infometrics analysis shows that card spending outside of Auckland was down 45% from usual levels at Level 4, before improving to a 33% drop at Level 3.

With the move to Level 2Δ, the rebound in activity is clear to see. For the first 17 days of Level 2Δ, spending outside Auckland was sitting 6.4% above 2019 levels, with a mighty 25% lift on the first day of Level 2Δ (see Chart 1).

The distribution of spending remains incredibly uneven. For the first 17 days of Level 2Δ, across the entire country, grocery spending remained incredibly strong, up 14% from usual levels, and in line with the consistently higher spending in this category throughout Lockdown 2.0.

Harsher restrictions mean that the hospitality sector is still hard-hit, even at Level 2Δ. Infometrics estimates that spending across New Zealand excluding Auckland for this sector is still 22% below usual levels. 

Home and recreation spending jolted upwards since the move to Level 2Δ, sitting 15% higher than usual across the entire country. This result is impressive given Auckland cannot spend, meaning that spending across the rest of New Zealand could be around 70% higher than usual.

It’s worthwhile noting that the bounce back in spending has been stronger than after Lockdown 1.0. This better response likely reflects a stronger underlying optimism about economic and employment situations this time around, with households and businesses much more fearful and uncertain after the first lockdown.

Auckland’s performance at Level 3 is expected to improve, but remain harder hit than the rest of the country at Level 3. Previous periods at higher Alert Levels suggest that Auckland spending at Level 3 will remain down 45% from usual levels, with hospitality spending down 67%.

Since we entered lockdown in mid-August, the total amount of card spending deferred or delayed is around $1.3b. Auckland’s time at Level 4 has seen the region’s spending hole continue to expand to around $767m, but the hole across the rest of New Zealand has moderated from a peak of $629m to $543m at present (see Chart 2).

Auckland’s bounce back in activity is expected to show a similar profile, as funds saved throughout Level 4 are spent. However, there are concerns that the region’s longer period at Level 4, and the fact that the latest lockdown is Auckland’s fifth stint at a higher alert level, could have weakened business resilience and created more sustained economic repercussions than previous lockdowns.

The hit to Auckland has been pronounced, given the length of time at Alert Level 4. But it’s important to highlight that Auckland has been at the forefront of New Zealand’s economic hit from COVID-19. The region has seen continued higher and longer Alert Level restrictions than any other part of the country, and so far, a lower economic pulse.

Infometrics analysis also shows that job losses in Auckland appear to be concentrated in central and south Auckland. Examining the proportion of the population by Local Board being supported by a main benefit, the largest increase has been in Mangare-Ōtāhuhu Local Board, with a 3.4 percentage point (pp) increase to 16.6% of the 2020 population. Ōtara-Papatoetoe (+3.1pp, to 14.1%) has the next highest rise, followed by Waitematā (+3pp to 6.4%, see Chart 3).

Lower employment in airport-related and tourism activities, face-to-face roles, and lower retail and hospitality offerings in the central city seem to be key to the declines noted above.

Level 3 is often called “Level 4 with takeaways”, with the partial reopening of hospitality providers for contactless pick-up a major focus for many people. But the revival of construction and manufacturing activity across Auckland is important too. The wholesaling of construction goods can also get back underway, allowing imported goods to get moving. With high levels of building work intended, the setback from Level 4 will see an additional lag in activity of at least 25 days.

The limitations on manufacturing activity at Level 4 in Auckland are important not only for the Super City, but also for the wider New Zealand economy. There are several manufacturing areas with operations concentrated in Auckland, with building supply issues attracting significant attention.

Infometrics analysis shows that there are several construction-related manufacturing areas with high concentrations in Auckland, so supply issues might persist for some time until production can work through previous orders. Carpet and other flooring is one key area, alongside insulation and plaster board (see Chart 4).

Several electrical equipment manufacturing sectors also have a high concentration in Auckland, meaning orders for some goods might be delayed further.

The vaccine rollout has substantially ramped up since the Delta outbreak began – an important positive step and once which enhances New Zealand’s ability to change our evolving approach to COVID-19.

However, with the stark consequences of too-low vaccination uptake expected to lead to unpalatable death levels and an overwhelmed health system, going further will be important. Slower vaccination levels in recent days provide some concern, alongside the fact that only 80% of the eligible population is vaccinated or booked to be vaccinated (see Chart 5).

That 20% represents around 840,000 people, who are eligible and able to book a time, but so far haven't shown any engagement with the vaccination rollout. It remains essential that everyone around New Zealand supports their friends, family, whanau, and community to get a vaccine. Reducing barriers to vaccinations, combatting hesitancy and misinformation, and incentives (and penalties) will all play an important role.

Auckland will remain at Alert Level 3 for at least two weeks, but there are concerns from health experts that the move to Level 3 might prolong higher case numbers in the Super City. If that is the case, Auckland might need to spend longer at Level 3 to limit the spread of COVID-19, which would further slow the bounce back in economic activity. The government faces a balancing act between the most effective public health settings, the restricted ability for the economy to operate at Level 3 and Level 4, and the increasing risk of non-compliance as people face lockdown fatigue.

The risks of continued restrictions will still weigh on expectations in the short term. Early signs from the rest of New Zealand show a strong bounce back so far from Lockdown 2.0, but the time spent by Auckland at Level 3 will determine how quickly the recovery can proceed from here.