Coronavirus epidemic to shave $300 million off of New Zealand economy

Saturday, 1 February 2020

The New Zealand economy will take a significant hit likely to be in the hundreds of millions from the coronavirus epidemic, analysts are forecasting.

Results for the Kiwi suspected of carrying the coronavirus have come back negative.

UBS economist Robin Clements forecast the virus would shave $300 million off the economy by the end of March, and was set to have a slightly larger impact on GDP than the Sars outbreak in 2003, which knocked an estimated 0.1 per cent off the country's economic growth.

Air New Zealand's decision on Saturday to halt flights from Auckland to Shanghai from between February 9 and March 29 will deal a further blow to tourism and trade between the countries.

On Saturday, the Director-General of Health Dr Ashley Bloomfield said tests on an Auckland man suspected of having the coronavirus had come back negative.

Empty seats at Hong Kong airport point to a looming problem for the NZ economy.

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However, he cautioned it was 'likely' to only be a matter of time before a case is confirmed in New Zealand.

Reserve Bank assistant governor Christian Hawkesby also pointed to the Sars outbreak as providing 'some potential parallels' for the economy in a speech last week.

The bank is due to make its next call on resetting the Official Cash Rate on February 12, and Hawkesby said it would need to monitor the impact of the virus, particularly on travel and 'confidence'.

ANZ has said the new 2019-nCoV virus appears more easily spread but less lethal than Sars.

Infometrics economist Brad Olsen said a lower death rate might not be much of a silver-lining when it came to the virus's economic impact.

'It doesn't matter so much how deadly it is; it is the restrictions that we seeing coming around.

'It might be a sharper hit than we have otherwise expected so far.'

New Zealand's trade dependency on China has increased massively since Sars, he and other analysts have warned.

BNZ senior economist Doug Steel said China consumed only 5 per cent of New Zealand's agricultural exports in 2003, and that had since grown to 29 per cent.

The 2019-nCoV coronavirus may not be as deadly as Sars, but that may not make much much difference to its economic impact.

The situation was similar with regard to tourism, he said.

'In New Zealand, Chinese visitors account for about 10 per cent of total visitor numbers and more than 14 per cent of total spending, compared to just under 4 per cent of visits back in 2002.'

Almost 10,000 Chinese visitors had so far cancelled trips to New Zealand, Tourism New Zealand said on Friday, but industry source said that was likely to be the tip of the iceberg.

Olsen said the timing of the outbreak was unfavourable for already 'soft' Chinese tourism, given about 35 per cent more tourists arrived from China during January and February than during other months.

Reserve Bank assistant governor Christian Hawkesby said the bank was monitoring the impact of the coronavirus outbreak on trade and through its financial and 'uncertainty' modelling.

UBS is now forecasting GDP growth of 2.1 per cent in the first three months of 2020, rather than 2.2 per cent, as a result of the virus.

Westpac chief economist Dominick Stephens didn't think the virus outbreak would be enough to tip the Reserve Bank to cut the Official Cash Rate (OCR) from 1 per cent at its next meeting.

But he expected the Reserve Bank would 'almost certainly say that it stands ready to cut the OCR should the coronavirus severely impact the economy, or if something else untoward happens'.

The virus has knocked hundreds of millions of dollars off the sharemarket value of businesses with the most exposure to international travel, such as Air New Zealand, Tourism Holdings and travel technology company Serko.

It also appears to have sliced more than 1 US cent off the value of the New Zealand dollar, which on Friday was trading below US65c for the first time since early December.

ASB said in a research note that the export of live crayfish to China had 'ground to a halt' and it expected a 'low to moderate' impact on meat exports, but believed dairy exports should hold up better as they were mostly a staple part of Chinese diets and were storable.

Olsen said there were plenty of other lesser impacts that were rapidly starting to add up.

'Cherries from Otago are also an area of concern.

'My contacts in the seafood market are saying 'look, just everything in China is shut'.

'I thought meat might hold up better but I've heard businesses are having issues because of delays shipping products around,' he said.

BNZ's Steel said it would be 'purely speculative' to estimate the size of any downturn because that would depend on how long it took for the virus to be contained.

But it would not be a surprise to see the news get a lot worse before it got better, he said.

'To judge the sector and macroeconomic effects, it is not so much a question of how much disruption and dislocation will the virus and response to it cause – it is already massive – but, rather, how long will such disruption last.'

Air New Zealand said it will directly contact customers affected by these changes with alternative travel options within the coming week. Customers booked via a travel agent (including online travel agents) will be contacted by their booking agent.

- In an earlier version of this story comments about almost 10,000 Chinese visitors cancelling trips to New Zealand were incorrectly attributed to the Tourism Industry Association.