Westpac economists say the damage to our economy will not result directly from coronavirus but the measures taken to try to contain it

Westpac economists say the damage to our economy will not result directly from coronavirus but the measures taken to try to contain it

New Zealand's quarterly GDP may be cut by as much as 0.4% if the travel ban now put in place for Chinese nationals to this country lasts for two months, Westpac economists say.

In their Weekly Economic Commentary the Westpac economists say the economic costs to New Zealand will arise not from the virus itself, but from the measures taken globally to try to contain it.

"Almost 60 million people are already effectively under lockdown in China, and people elsewhere in China are avoiding gathering in numbers. High-end New Zealand food exports destined for such gatherings have already been impacted. Crayfish was the first example, but we expect other seafood, fruit and meat exports will soon be seriously disrupted, as well as lesser disruptions to other exports stemming from the general slowing of economic activity in China," they say.

But the biggest impact on the New Zealand economy will stem from fewer people travelling between the two countries.

The Westpac economists have calculated a "plausible scenario" in which seasonally adjusted visitor arrivals to New Zealand drop by 11% over the coming three months.

"That, on its own, would reduce New Zealand quarterly GDP by around 0.4 percentage points," the economists say.

"The assumptions underpinning that are that we receive zero visitor arrivals from China for two months, followed by half the usual number in the third month. We further assume that arrivals from the rest of Asia are dented by 20%. On top of the direct impact of restricted travel, the New Zealand economy will also face second-round effects such as reduced spending by furloughed tourism workers, and the GDP impact from disrupted goods exports.

"The crucial factor is how long the virus remains disruptive to the economy. Should the epidemic recede quickly, then the hit to the economy will prove fleeting and the recovery very rapid. The hit to annual GDP would be far less than 0.4 percentage points, and the implications for the Reserve Bank and other economy-watchers would be limited.

"If the epidemic disrupts economic life for longer than SARS or Swine Flu did, then the consequences would be more severe. For example, would-be students travelling to New Zealand might cancel their plans altogether, rather than merely postponing their travel."

ANZ economists, in their Weekly Focus publication say the more widespread the outbreak becomes and the longer it goes on, the greater the risks are to the Chinese economy, the global economy and to New Zealand.

"We are currently assuming that the outbreak will have only a modest dampening impact on our export volumes and prices, with the hope that the virus is contained soon," they say.

"However, the possibility of a larger impact cannot be ruled out. There are similarities between the new coronavirus and the 2003 outbreak of SARS, but also some important differences. One key difference is that New Zealand’s trade exposure to China is massively higher than it was in 2003."

 

The ANZ economists say the magnitude of the total economic impact is highly uncertain "but the overall direction of risk is clear".

It could be expected they say that there would be a negative impact on GDP in the short term (the first half of this year) at least, primarily as a result of the impact on soft commodity prices, trade channel disruption, and reduced tourism and travel exports.

"The impact on GDP growth will be temporary, but could be sharp if the disruption is severe."

The impact of a more persistent outbreak would depend crucially on the resilience of global and domestic demand, confidence effects, and possible NZD and policy responses. There could also be flow-on effects over time to a range of industries, the labour market and spending.

"For inflation, we would expect to see a dampening impact in the short term at least. Food prices, for example, will be lower, with reduced supply to China potentially causing an increase in product available domestically."

The ANZ economists say the Reserve Bank, which is making its first review for the year of the Official Cash Rate on February 12, can be expected to "look through" temporary effects.

"In a bad/prolonged scenario, OCR cuts could be judged necessary in order to shore up confidence and the inflation and labour market outlooks. But it is early days and there is much uncertainty, so that certainly won’t be on the cards at this stage. For the February MPS, the RBNZ will likely acknowledge the tragic developments associated with the outbreak, the huge uncertainty it presents, and potentially the channels through which New Zealand may be affected, drawing parallels with the 2003 SARS outbreak.

"These risks will temper the RBNZ’s optimism regarding the domestic outlook. The medium-term domestic outlook would otherwise have been more positive, with a stronger outlook for the housing market and fiscal spending. For now, the RBNZ can be patient – and will watch, worry and wait."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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42 Comments

The US should eliminate all the tarrifs on imports from China and others, and stop or at least suspend the trade war for a period to counter act the impact from the coronavirus.

haha

Some how I don't think they're on the same page as you. BBC Wilbur Ross says Coronavirus could boost US jobs. "US commerce secretary Wilbur Ross has said the deadly coronavirus outbreak in China could be positive for the American economy".
https://www.bbc.com/news/business-51276323

China handed America the best opportunity to undermine her. It is something DT could not achieve with the trade war, what should America stop now?

#BREAKING: Aussie share market plunges at open on coronavirus fears. Investor panic has set in as a dramatic sell-off on the Australian share market has resulted in billions of dollars being wiped on open https://www.news.com.au/finance/markets/australian-markets/aussie-share-...

Probably overpriced anyway. If so why would NZ be any different?

will be interesting to see if discounts suddenly appear in the tourist sector to encourage locals to have a staycation rather than price them out as happens now

Yes. But it won't happen too quickly.
Just wait a month or 2 and then see what the prices are like then.

due for a holiday so looking forward to some SI bargains in a month or two

10
up

11% reduction in visitor arrivals next 3 months sounds too low.
One would presume that not only visitors from Asia, but also those from rest of the world, will travel less.

Especially the ones who would have connecting flights via Asia

Great idea... let's sit on a plane with a heap of people breathing the same air.....

Yeah, you really aren't, the plane is pressurised, that air gets cycled pretty damn quick once you are airborne

https://www.rnz.co.nz/news/national/408720/chinese-consul-general-critic...
The Chinese Consul General should travel to Wihan himself to show us how safe it is. Be a guinea pig.

11
up

I listened to this interview on the radio this morning, the Chinese Consul General straight up threatened economic retaliation for the travel ban.

Only 25% of our market.... a -0.4% decline forecast. Yeah, I don't think so!

14
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Thats the Chinese way, Bullying at best...

As kiwis we just need to stand up for ourselves and politely give China the middle finger as is appropriate right now.

No amount of retaliation will match the harm done if we became riddled with the virus here.

Well done NZ govt.

The same as the US. Think Nuke Free NZ.

Corona free New Zealand!

A win for our elderly and bearded beer aficionados!

Well the Chinese Consulate General can very well threaten NZ as do not forget our (NZ) very survival is on China and it's money =Rock Star Economy.

Masters have every right to be upset and blackmail as they too know that now NZ by itself is zero / Finished and for NZ 'Your Wish is my command' - can anyone dispute this universal truth.

The taste of isolation is bitter, I guess.

Our decision will hurt their economy, yeah right!

As the infected rises to 16798 and the dead to 362.

Yeah safe as Bro!

A day later and 20200 and 426, >3% mortality in 13500 confirmed cases of Hubei.

Bit hypocritical as China themselves have banned outward travel of their citizens now!

One would expect our good friend China to respect NZ's sovereignty and not seek to interfere in our domestic political decisions.

Good one :)

14
up

Thank god NZ ers haven't put all their eggs in one basket.

I have a sudden thirst for a Tui.

Or that we restrict travel to all those trying to reach their empty Auckland house.

That's a very good point. Whats the use of a bolt hole when you cannot travel. Or if say China invaded Taiwan for example, its very likely that we would not want any mass exodus from Mainland China to come here.
Unless of course China had NZ politicians in their pockets..... :)

This would be the perfect opportunity to show trade with China as a component of Balance of Payments.

And the contrast BoP to GDP impact would be helpful. Q: did Westpac do such an appending page?

If China's only Pathogens Laboratory is in Wuhan and the biggest virus in recent history (& turns Global Emergency) is there at the same time, what are they doing there? They need to shut the Lab down!
1) It hasn't helped in preventing any pathogen outbreaks.
2) It has not helped in curing any;
If it has not been beneficial, then it very well could have caused this as a depopulation plan;
By the Beijing Government itself. Perfect timing, and the 100,000 pot luck dinner a few days before the crackdown to aid in spreading it. The track record of the politics in Wuhan is the people have been protesting in 2019 Anti-pollution protests, and now the CCP is showing its might, that it can lock the city down by force. Depopulate the Protesters, and "come to the rescue with hospitals" This is the way they have worked, time and time again through out history. The Beijing Government have it all "UNDER CONTROL".

Talking to a Chinese friend who has mainland Chinese clients; it looks like the "hospitals" are very like very secure makeshift jails; and that most of China is unaware of the Coronavirus issues due to media controls.
Very hard to believe anything the CCP is telling the world.
Shanghai down 9.1% so rich people know.

Shanghai down 8% on opening... Buckle up!

That's a pretty savage gap!

Why is the Shanghai market down.
The majority of companies on the sharemarket in China are either owned by the with 51% ownership or more or are ike our SOE.
The Govt will make sure the markets don't collapse imo.
The can work miracles with money or no money.

It's a sad indictment of our economy that our growth is so sensitive and vulnerable to a short term visitor drop.

Run that analysis on most other economies and you'll see how comical our pretensions of first world status are.

Only around three months ago.. Xi Jinping said, '.. No Force can stop China..' let alone the world that now came to realisation how dependent they're magically being hypnotised to source everything from China, then would be wise to decided no longer source it from China? - Just a simplest tiny bugs, that having nothing to do with other massive strength on the planet, able to put China on hold.. plainly just because, no Chinese will look you with respect when you remind them to not spitting around, as a dried sputum germs can be easily blown by the wind. Or remind them to buy a blue pills instead of consuming the expensive price of wild tiger penis.. let alone buying the cheaper version of harvested farm tiger, farm bear for bile. As the Chinese haunted Canterbury academic mention: China is for Chinese, Chinese is for China - We'll buy this NZ lands for every of our future needs (rarely any Chinese, thinking of anything else on this planet, apart from about them).

I tried to translate the word Hygiene into Chinese and all my translators would give me was the word Health.
Do they even have a word for it? Does anybody know? That's when I thought the same thing it is not Hygiene to eat Bear bile and tiger penis, but they for some weird reason think it is Health. Crazy, dark ages, superstitious voodoo s***. The End.

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