NZ economy starting to feel early effects of coronavirus outbreak

Monday, 27 January 2020

China has curbed travel and stepped up screening to try and curb the spread of the virus which emerged in December.

Economists are starting to express concerns about the possible impact of the new coronavirus, 2019-nCov, on the overall New Zealand economy, after a weekend of negative developments.

Infometrics senior economist Brad Olsen said it would be at least a month before any impact of the disease outbreak started to come through in official trade statistics.

But Infometrics wouldn't be waiting to start calling contacts and gauging the possible impact, he said.

Kiwibank said that with 'plenty still not known about the coronavirus', the economic impact was highly uncertain.

Fewer people eating out in China can have a direct hit on New Zealand's GDP.

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Infometrics economist Brad Olsen says possible hit on tourism and international education comes at time when those sectors were already soft.

But it believed the outbreak could have been responsible for curtailing an inflation-fuelled rally in interest rates and the New Zealand dollar last week.

Ratings agency S&P warned that if the coronavirus continued to spread it could shave 1.2 percentage points off Chinese economic growth this year, Kiwibank noted.

'New Zealand's tourism sector is likely to be the first industry at home to feel the economic fallout,' Kiwibank said.

Oslen said Friday was 'when we started to see a lot of the overseas-based contagions and that is when people started to think this is a slightly wider issue'.

'It could get a lot worse. It could also get a lot better a lot quicker.

Tourism is another industry that could be hit.

'But given how important China is to the local economy I think it is worth us keeping a closer eye on and I suspect we will be having conversations in the days and weeks ahead.'

Peter Openshaw, Professor of Medicine at Imperial College London has said people in the UK should be 'conerned but not alarmed' about the coronavirus reaching the UK.

The timing of the outbreak means the Reserve Bank may have to decide whether to factor the virus into its next decision on setting the Official Cash Rate on February 12, without full information on its severity.

An Australian National University study estimated the outbreak of the Sars coronavirus in 2003 knocked only 0.08 per cent off New Zealand's GDP that year, while causing a hit of just over 1 per cent on China's GDP.

Sars infected 8098 people worldwide, of whom 774 died, before the outbreak was contained.

But reports that 2019-nCov could be infectious for up to 14 days before symptoms show appear to demonstrate one of the pitfalls in making comparisons.

Analyst Morningstar reported that Chinese shares fell about 3 per cent on Thursday – their biggest one-day fall in nearly nine months – as investors unloaded shares related to restaurants, cinemas, airlines and theme parks.

China's share markets were closed on Friday for the Chinese new year.

The NZX was down 0.5 per cent on Monday morning, in lighter-than-usual trading that was due to a public holiday in Auckland.

Auckland Airport, Air New Zealand and A2 Milk were the top-three traded stocks and were all down more than 1 per cent, suggesting virus concerns were having an impact on trading.

The timing of the outbreak around Chinese New Year is expected to exacerbate the impact on some exports.

Some people in the seafood markets were getting a bit uneasy about 2019-nCov and exports of 'high-value-add' dairy products could also suffer, Olsen said.

There were reports in 2003 that beef and lamb prices fell by about 10 per cent in 2003 in Asian markets that were impacted by Sars.

But Olsen said international meat markets were currently experiencing constrained supply 'so I expect they will hold up alright, or certainly a lot longer than seafood'.

'Our primary exports are in a really strong position at the moment so coming back from these highs is not going to be the end of the world, but it is an area of caution.

'There could also be roll-on impacts for tourism, and we know Chinese tourism has already been incredibly soft recently and this could exacerbate that.'

Sars had proved a catalyst for Japanese tourist numbers to New Zealand to drop off, Olsen said.

The impact on the international education industry was also likely to come into focus, he said.

'I know the universities are considering quite closely what to do, where they might have people coming, particularly from Wuhan.'