Treasury flags impact of coronavirus on tourism and education sectors

Treasury says it's too early to put a figure on the possible impact of the coronavirus on the NZ economy; Expects the tourism and education sectors to be worst affected short-term

9th Feb 20, 6:02am by Jenée Tibshraeny

Image sourced from Pixabay

Treasury expects New Zealand's tourism and international education sectors to be worst affected by coronavirus in the short-term.

Yet it’s too early to put a figure on the effect the virus could have on the New Zealand economy as a whole.

“This work is still in progress,” a spokesperson told interest.co.nz, noting the agency is dealing with an “emerging situation”.

A working paper Treasury did in 2006 on the potential impacts of an influenza pandemic on the New Zealand economy found that in a severe situation (where 40% of the population was infected and 0.8% of the population died), real gross domestic product (GDP) would be reduced by 5% to 10% in the year of the pandemic.

Over four years, the cumulative GDP reduction would be 10% to 15% of one year’s GDP.

Treasury said that while the one-year impact would be similar to the impact of the 1931 depression, the cumulative four-year impact wouldn’t be as bad.

Meanwhile Treasury predicted that if 30% of the population was infected and 0.25% of the population died (which would be comparable to pandemics in 1958 and 1967), GDP would take a 1% to 2% hit in the first year.

The agency likened this impact to that of a typical business cycle downturn.

Commenting on coronavirus, a Treasury spokesperson said: “Novel Coronavirus is expected to negatively impact the Chinese economy with a particular effect on service sectors. These sectors require a lot of person-to-person interaction.

“Supply chain management across other sectors would be a particular example of a broader impact. The virus is likely to impact on an already fragile global economy as the effects are transmitted across China’s trading partners.

“The economic impact on New Zealand will depend on the duration of this situation, but preliminary analysis suggests that initially tourism and international education sectors are expected to feel the most significant impact of the Coronavirus in the short term.

“There are no formal restrictions on market access for goods exports and imports as a result of the outbreak, and trade regulatory conditions are unaffected.

“However, there are reports that some sectors have already seen a fall in demand for their products or have been affected by delays at the border due to travel restrictions and staff availability in China. For example, this includes reports that forestry and log exporters are facing delays at the border.

“Flight cancellations by some airlines are also likely to affect airfreight shipments of certain perishable and high value goods to China.

“Duration and geographic spread of the virus are clear risks around the global economic and financial impact. If the situation is prolonged and becomes more widespread, then disruptions would be more far-reaching.

“Experience with previous outbreaks suggests that when the virus is contained, activity will quickly return to normal.”

Westpac economists earlier in the week estimated the travel ban from China to New Zealand would dent New Zealand’s quarterly GDP by 0.4% if it lasted for two months.

They believed the Reserve Bank would leave the door open to interest rate cuts, despite labour market data being strong, so it could respond the effects of coronavirus should it need to.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

45 Comments

by profile | 9th Feb 20, 8:15am 1581189354

Tourism is finished anyway given the the political class has signed up to net zero for other people.
"The only way to hit net zero by 2050 is to stop flying."
"Aviation: There are no options for zero-emissions flight in the time available for action, so the industry faces a rapid contraction. Developments in electric flight may be relevant beyond 2050."
https://www.ft.com/content/e00819ba-4814-11ea-aee2-9ddbdc86190d
http://www.ukfires.org/wp-content/uploads/2019/11/Absolute-Zero-online…

by Cowpat | 9th Feb 20, 9:02am 1581192167

Westpac's latest bulletin 5 February ,now forecasts a drop of 0.65 percent from first quarter GDP . From 0.7 to 0.1 percent.
https://www.westpac.co.nz/assets/Business/Economic-Updates/2020/Bulleti…

by Fritz | 9th Feb 20, 9:19am 1581193177

They haven't modelled impacts of reduced travel from countries other than China. This could also have significant impact, especially from Asia

by Kezza R | 9th Feb 20, 10:23am 1581196988

From all corners of the globe. Fewer will be wanting to sit on a plane or ship due to the risk. A lot of tourisium operators will not have the numbers carry on operating at a profitable level.
Death levels will be much higher in countries that can not contain and treat the virus like China.
I'm picking that the economists are still being optimistic to try and contain the fear.

by Fritz | 9th Feb 20, 11:06am 1581199600

Agree.
Cruise ship business will collapse too.
Even if the virus fizzles out by May, it's likely to affect travel till probably at least July/August.

by Audaxes | 9th Feb 20, 9:08am 1581192495

Watch China Overtake The US As The World’s Major Trading Partner

by Brock Landers | 9th Feb 20, 9:59am 1581195590

They assume it's going to be contained.

by Kezza R | 9th Feb 20, 11:10am 1581199836

It won't be contained in China.
India, Africa and a host of others will not have the infrastructure to contain as China has.
I think we all suspect / know that the official stats are not correct and likely to be 10 times higher. The cruise ship in Japan gives us a better idea of infection rates in confined areas and the easy is spreads.

by Fritz | 9th Feb 20, 11:08am 1581199698

Yep quite possible.
My view is NZ will get off lightly in terms of direct health impacts.

by Kezza R | 9th Feb 20, 11:24am 1581200695

We don't have the population pressures as a lot of the world and that should contain it easier here, that's for certain. Think of an infected rush hour commuter on a subway / tube in a city to and from work for a week before showing signs...
It's more the economy globally that will take a hit. That has a massive flow on effect that is going to be shocking... pension savings wiped out, house prices falling to name just a couple. I don't know if they can contain that.
When push comes to shove and it gets here, I'll be renting my house out to someone who is bugging out of somewhere like the States / Europe for 6 months paid in advance and going bush.

by Kate | 9th Feb 20, 10:37am 1581197870

So many places - including NZ - are so overrun by tourist numbers that the reason for visiting in the first place (i.e., quaintness, unspoiled beauty, seclusion, quiet/relaxing) is negated in the actual experience of place. Mt Everest being the ultimate in how ridiculous tourist numbers have change the nature of the experience so completely.

And where education is concerned - we used to have an education system that did not rely on income generating overseas students. Our university sector, for the population of New Zealand is to my mind, over-serviced. We could maintain and improve the caliber of all of our existing institutions, provided they came together cooperatively and set out a plan to stop competing with one another by trying to offer all courses to all peoples.

Or, in other words, move back to thinking on a focus on knowledge specialization by institution, and move from that to reshape the offerings going forward from each.

My thought is that an external shock to both the tourism and education sectors isn't a bad thing. Fewer but higher value tourists and higher value education by way of consolidating local expertise.

by Fritz | 9th Feb 20, 11:10am 1581199835

Agree.
My enjoyment of Japan last July was reduced by the vast number of Chinese tourists, especially in Kyoto, a place that you go for slow, contemplative travel.
Less of an issue in huge cities which are frantic by their very nature.

by frazz | 9th Feb 20, 5:37pm 1581223063

So annoying when you are a tourist and your travels are upset by other tourists.

by Lapun | 9th Feb 20, 1:15pm 1581207359

Kate, I believe you work in the tertiary education sector so your comment about our university sector being over-serviced is very brave. You may be no platformed and confined in a university safe space. But I suspect you are right. I wouldn't mind seeing NZ attempt to expand by persuing quality instead of quantity. How many of our overseas students are here because they think NZ will provide more rigourous study than say the Indian Institute of Science (IISC) Bangalore or Tsinghua University let alone MIT, Oxford, Princeton?
While you hide from the wrath of NZ academia I'll hide from the armed might of Grey Power for my suggestion that the govt could take money being spent on Superannuation and transfer it to a generous universal child benefit.

by Kate | 9th Feb 20, 3:12pm 1581214363

In my experience, the majority of our university-based undergraduate foreign students study in NZ because we are English-language speaking (i.e., they wish to become fluent in the English language), and in the hope of then working in NZ, or another English-speaking country on completion of study. Postgraduate students have a much wider range of reasons for choosing NZ - mostly to do with specialization - or our unique knowledge/expertise/research in particular areas.

That said, tertiary education is changing rapidly with technological advances - distance learning is a large part of the future. We need not invest in bricks and mortar or in student visa holders to chase numbers any longer.

by Lapun | 9th Feb 20, 5:57pm 1581224268

Several years ago I queried the need for so many large university buildings mainly on prime city land. That was over ten years ago when taking a course on C++ at Massey Uni and discovering no lecture had 50% of students attending and on one occasion there was just myself and the lecturer for the first 20 minutes until a another student arrived.
My lecturer was very good (he moved to Melbourne) with well prepared lectures but in hindsight I could find equally good lectures online from more famous universities. I was there to learn a skill not get a qualification.

by workingman | 9th Feb 20, 6:39pm 1581226786

I was told by someone well-connected with Victoria University, that foreign students were less concerned with education than with pathways to residence. The pity is that the universities have become businesses dependent on this income, and thus increasingly dependent on avoiding any upset or offence to their customer markets. Perhaps it would streamline business efficiency, and add to university incomes, if faculty members have real estate qualifications.

by Taxbreak | 9th Feb 20, 11:16pm 1581243382

Up to 2018, in Bay of Plenty you would find large numbers of Indian "students" fresh off the plane straight into kiwifruit orchards. Presumably lined up or connected through Indian labour subcontractors which are significant players (labour providers) in the industry. These students would regularly disappear off the job to attend "business" courses through third tier education providers. It seemed the Kiwifruit industry acquiesced to this, and the flood of cheap labour (masquerading as students) continued up until the current government came into power and tightened the rules. The ones I came into contact with were always focussed on finding a way to residence. The third tier (visa mill) education providers now appear to have diminished or gone out of business under the current government. On a similar note, it would be good to see the university sector reduce its financial dependency on foreign students.

by workingman | 9th Feb 20, 10:47am 1581198468

Predictions are fingers in the wind. All that is certain is that the CCP is desperate to keep a lid on authentic information among its own population and for the world outside. Its priority is maintenance of its own authority - and facts are never allowed to get in the way of this. We, like the rest of the world and most of China, have no idea how this will play out. Effects on GDP are one thing. It might even - heaven help them - affect the funding of our own political parties.

by profile | 9th Feb 20, 11:35am 1581201302

The CCP won't let this chance of a good purge/"maintenance of its own authority" go to waste either. Some of the vids coming out of China are disturbing to say the least.

by Fritz | 9th Feb 20, 11:41am 1581201684

Their 'True Colours' are certainly being revealed.
Horrid regime.

by Lapun | 9th Feb 20, 1:21pm 1581207715

I've long concurred with your remark 'horrid regime' but given sufficient threat even the kindest govt has to be ruthless. Read about 'Typoid Mary' - imprisoned for over twenty years because she wanted to be a cook.

by NZChinese | 9th Feb 20, 12:13pm 1581203602

The special committee directing the work to contain the outbreak is led by the Premier, and includes senior ccp leaders who are from various sectors such as propaganda, public security, foreign relationship etc. while no one has any public health or medical background. To me, it tells the main focus the authority has. I have no doubt they will have the things under control and i think it's also what the markets want, but the cost ordinary chinese people (especially people of wuhan and hubei province) need to pay will be staggering... and there will be a long term political impact.

by Kezza R | 9th Feb 20, 1:12pm 1581207134

Cheers NZChinise, I apreachate your updates.

by Fritz | 9th Feb 20, 11:14am 1581200046

I wonder if Westpac are having second thoughts about 7% house price growth. Seemed high anyway, especially in an election year.

by Kezza R | 9th Feb 20, 1:19pm 1581207547

I think we can safely say there will e no house price growth at best even of the situation stays flat and is over with on 3 months.
I was looking at buying but it's off the cards now and I doubt many would want to take a risk at present unless they had to.

by Carlos67 | 10th Feb 20, 4:49am 1581263393

Better tell that to everyone currently trying to buy a house in Tauranga open homes are busy.

by Fritz | 9th Feb 20, 11:44am 1581201884

'If China valued freedom of speech, there would be no coronavirus crisis'

https://www.theguardian.com/world/2020/feb/08/if-china-valued-free-spee…

by Lapun | 9th Feb 20, 1:28pm 1581208128

Isn't this rather like the melamine milk crisis. From wikipedia ""Fonterra notified the New Zealand government on 5 September and three days later, the Prime Minister Helen Clark had Beijing officials alerted directly. News reports began circulating in China on 9 September, the news broke internationally a day later by Reuters."" So we have had a politician that saved lives.

by ngakonui gold | 9th Feb 20, 11:52am 1581202366

A positive from no tourists arriving could be that the Govt will have more choice in what standard of Motel/Hotel the house the homeless in.

by Kezza R | 9th Feb 20, 1:17pm 1581207453

But twice the amount of people to put in them.

by Fritz | 9th Feb 20, 4:38pm 1581219531

Hilton

by streetwise | 9th Feb 20, 12:14pm 1581203666

"Welcome to the new world order"

If global trade continues to wither then we could end up with another Great Depression like the 1930's.
What would this look like?
Much like it would if capitalism continued on its present path unabated with its express-train rush to ever-increasing disparity of wealth. The above lyric is from Bruce Springsteen's "The Ghost of Tom Joad",
in regard to which see the YouTube video ( harveywetdog version) of this song with it's accompanying photos
of 1930s depression victims in the USA.

by ngakonui gold | 9th Feb 20, 12:51pm 1581205901

Watched Inside Story on Aljazzera last night.
EINAR TANGEN an advisor on economic and developement issue for the Chinese Govt would have to be the biggest defender of the Chinese Govt that i have ever heard.
Made much of the fact that the Doctor who discovered the virus was an eye doctor therefore virtually ruling him out as been credible.

by IT GUY | 9th Feb 20, 7:49pm 1581230944

What will be the economic impact if it gets epidemic here?

by Fritz | 9th Feb 20, 7:53pm 1581231219

Someone modelled it, 5-10% drop in GDP
Massive

by Kezza R | 9th Feb 20, 9:16pm 1581236172

Where NZ / Globally / China ?
Let's face it we've taken a hit on our big earners already. They called a 0.1% at the start then 0.4%, now upto 1.00%. I think they are still playing at making ot look as bright as possible to preserve their bosses margins for the present at least.

by CN | 10th Feb 20, 4:58am 1581263930

The epidemic doesn't need to affect any New Zealand residents to have an economic impact on New Zealand.

Some exporters to China are seeing reduced revenues. E.g NZ crayfish exports. Hearing impact on others in NZ also.

Tourism - fewer tourists visiting NZ means some tourism related businesses will have lower revenues E.g hotels, car hire, restaurants, cafes, etc. Tourism reliant locations such as Queenstown may see a slowdown in their local economy a) fewer tourists results in less revenue for hotels, tourist attraction operators, car hire businesses, local retailers which are reliant upon tourists. Due to lower revenues, businesses cut costs This may mean some local jobs are cut. Some restaurants and cafes may experience losses and cashflow stress, and cut staff.
There is a trickle on effect. People who have lost their jobs, then cut back on spending such as clothing purchases, entertainment, going out to bars and restaurants, hold off on buying household furniture, white goods, delay purchases of consumer electronics (TV's, mobile phones), delay purchases of motor vehicles, etc. So then retailers experience even more reduced revenues.

The virus has also impacted other Asian countries such as Japan, Thailand & Singapore. There may be fewer tourists from these countries to NZ. Air NZ might experience lower revenues.

There are also global supply chains. Any business which sources product or components from China might experience difficulties in getting their product. For example the maker of Apple iPhones has stopped their manufacturing in China factories, so this may have an impact of availability of iPhones in local stores, if there is a very long stoppage. Some footwear is manufactured in China. I believe retailers such as Briscoes and The Warehouse source product out of China. I think some construction materials are sourced out of China.

China is about 17% of global GDP now. Much bigger than in 2003 when SARS hit when China was about 4% of global GDP.

1) https://asia.nikkei.com/Spotlight/Coronavirus-outbreak/China-blocks-res…
2) https://amp.cnn.com/cnn/2020/02/08/business/coronavirus-global-economy/…

by Fritz | 9th Feb 20, 8:02pm 1581231751

She'll be right, mate!!!!

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12307128

by Kezza R | 9th Feb 20, 10:35pm 1581240946

If this breaks put on NZ, the current parties need to be removed!
Enough excuses, enough of not delivering they just don't cut it as leaders and implementers.

by Carlos67 | 10th Feb 20, 4:57am 1581263856

All flights other than just cargo should have been immediately suspended until it was fully understood what we are dealing with and note that even at the time of typing this we still don't know the magnitude of this.

by RickStrauss | 11th Feb 20, 9:18am 1581365900

I'd doubt the willingness of either major party to stop volume entry from China. Too much money in tertiary education and businesses dependent on folks coming in.

by frazz | 10th Feb 20, 1:39pm 1581295192

And Soyman does?

by lastlegs | 9th Feb 20, 10:48pm 1581241727

yes,cant believe that planeloads are coming home from their holidays in mainland china and no checks.maybe back to work at the casino,kids off to daycare. the self-quarantine thing is unenforceable.we done the same thing with SARS,too hard basket.collateral damage,thoughts and prayers.

by DIYman | 10th Feb 20, 5:20am 1581265212

Its hard to know which is currently having the greatest effect on West Coast tourism, first the road closures, last season and again this season, then some pretty wet and windy weather, not to forget the wipeout of glacier access, and now the virus. Some hotels are empty, and letting staff go. These are staff that they worked hard to find, accommodate, and train. Things are not great in tourism on the West Coast right now.