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.