The recent seven-day lockdown in Auckland has been in keeping with the government’s strict response to possible spreads throughout the crisis. While this strategy has helped make New Zealand highly successful in stemming the spread of Covid-19, it has also had a harsh effect on the economy.
A new report indicates that between September to November of 2020, 16,234 businesses have shut their doors permanently. This is in stark comparison to the 7,154 business that closed up shop over the same period in 2019. It is a 127% increase in business closures.
Though the figures are discouraging, it is noteworthy that they are nowhere near as bad as had been predicted, and fall short of the 20,853 businesses that closed during the peak of the Global Financial Crisis (GFC) in 2011. In fact, the opening of new businesses rose over the September to November 2020 period by 8%, as represented by the 19,906 new entrants.
On the downside, experts are predicting that we are yet to see the worst effects of the pandemic till next year or later. According to ANZ economist Sharon Zollner, these recent figures are in keeping with predictions that the economy will go sideways. She confirmed that for sectors like tourism, the wage subsidy and uptick in domestic tourism through winter had helped soften the impact. She however noted that from September, the shortfalls in cash flows were hitting service businesses in the sector hard, with many eating into their reserves.
She pointed out that the government could not afford to save every business and there was uncertainty as to what kind of tourist activity the country could expect once the borders are later opened up. There is also concern that once borders open, more locals would cut back on retail spending to save up for overseas travel.
Employers and Manufacturers Association (EMA) chief executive, Brett O’Riley, said it was worrying how many zombie businesses were still running, with staff relying on government assistance. The spike in business closures has been linked to an end of wage subsidies that closed on September 1st, 2020. He highlighted businesses in the hospitality, tourism, accommodation, and international education sectors as the worst hit due to the loss of jobs and impact on communities. Following meetings with members, O’Riley noted that businesses were struggling to keep their staff, with some selling equipment to keep finances afloat.
Dot Loves Data’s government director, Justin Lester, also confirmed that the subsidies were a lifeline that held off the inevitable. He said people were finding it difficult to keep their businesses solvent, making the rate of liquidations slow. The worst affected regions were tourist hotspots like Queenstown and Westland.