New Zealand is now in a near-total lockdown for at least four weeks. And we wouldn’t be surprised if the lockdown lasted for two months. With no construction or non-food manufacturing taking place, activity will be hit hard. We have pencilled in a 30% q/q drop in output in Q2. The resulting loss in activity will drive the unemployment rate higher and cause inflation to fall further below the RBNZ’s target. In Australia, restrictions are not nearly as severe. To be sure, cafes, bars and entertainment venues are now closed. But many retail shops remain open. And mining and manufacturing continue to take place. We therefore think the hit to activity in Australia will be less sharp, but more drawn out. Indeed, Scott Morrison has repeatedly mentioned that the partial lockdown could last six months.
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