Going viral: The economic impact of a health crisis
About 12 years ago I started a little online business. It’s a simple e-commerce play, selling niche sporting goods and clothing to outdoorsy folk aged over 35 whose idea of style tends towards tweed, canvas and leather – plus having a couple of hounds in a Landie.
I get the products made in various countries, including China.
On Thursday I got an email from one of my Chinese manufacturers reassuring me that the coronavirus wasn’t going to affect an order I currently have with them. It was a good note, honestly written, looking after me, the customer.
It was also the first downstream contact I’d had with the impact of the viral outbreak that started in the Huanan Seafood Market in Wuhan a month ago.
Then yesterday I had a meeting cancelled because one of the attendees had just returned from two months in China, and while that didn’t include Wuhan it did include a neighbouring province. He decided to play it safe. And rightly so.
Two direct impacts in two days from something that happened 10,000 kilometres away served as a sober reminder of the global economy that we now all inhabit.
But it’s not new. Seventeen years ago a small outbreak of Severe Acute Respiratory Syndrome (Sars) spread rapidly. What started as an animal virus in
Southern China ended up killing nearly 800 people worldwide.
According to an analysis undertaken by the United States Institute of Medicine Forum on Microbial Threats, the impact of the Sars crisis on the world economy was an estimated US$40 billion.
Looking across New Zealand right now, it’s impossible to say the exact cost, but it’s worth thinking about where the big hits will come locally.
The local impact will be more than Sars. Seventeen years ago there was no outward travel ban in China and it was a minor market for New Zealand in terms of trade and tourism. That’s no longer the case.
Let’s start with tourism. Roughly speaking, we get around 2 million tourists a year and around 17 per cent of them come from China. While this flow won’t immediately all dry up, it will be meaningfully affected over the foreseeable future, given the
Chinese government ban on package tour groups.
But the impact will be much broader than tourism.
Importers face challenges as their suppliers potentially face restrictions around labour, raw material access and shipping.
Likewise exporters face an uncertain time, as China is our single biggest export trade market.
According to Statistics New Zealand, last year we sent $4b worth of dairy, $2.9b of logs and wood and $1.9b of meat to the Middle Kingdom.
ANZ Bank is picking a slowdown in the premium food exports this month as people shy away from restaurants and the crayfish industry has already had their first cancellation.
We also sell China a truckload of education.
International education contributes $5.1b to New Zealand’s economy and China makes up about 50 per cent of school-level overseas students. They also account for 47 per cent of the foreign students at university in New Zealand according to the Education Ministry.
Although many of the secondary students will have already arrived for their studies this year, the tertiary ones tend to start arriving now to secure their accommodation before study starts in March.
There’s also the larger question about whether the coronavirus will be significant enough to be the beginning of the end for an 11-year global bull market.
A market that has benefited New Zealand’s 2.9 million KiwiSaver members and the various investment funds that have exposure to global equities. A market that went up by more than 20 per cent last year.
In classic economist speak, right now it’s ‘‘too soon to say’’, but the early signs suggest that despite the Dow Jones Industrial Average posting five consecutive days of decline, it’s not the beginning of the end for the charging bull.
What it does do, however, is give all investors a reminder that the theory of risk is different to the practical experience of it. While it’s easy enough to sign up to a highrisk fund when markets are powering north, it’s a whole new ball of wax when they’re hiccupping or heading south.
Although this is not a rerun of Sars in terms of local impact, it is worth comparing the headline numbers.
Sars was an animal-sourced virus that infected 8096, killed 774 and took seven months to contain. The majority of deaths were in the first three months.
Coronavirus is also an animalsourced virus which has infected 6000 people and 130 have died after five weeks. Like Sars there is no cure, but the process around containment has started a lot earlier.
A year after the official containment of Sars there were just four deaths and there have been none in the 16 years since. Global growth rebounded and the market took off like a firecracker. Hopefully we will see the same pattern with coronavirus.
But better hang on in the interim. It’s going to be bouncy.
Mike ‘‘MOD’’ O’Donnell is a professional director, writer and facilitator. His Twitter handle is @modsta. While this column is his personal opinion, MOD is a director of Tourism New Zealand.
Could this be the beginning of the end for an 11-year global bull market?