Virus will hurt economy but panic unhelpful

The escalating coronavirus epidemic is polarising attitudes to risk in ways we haven’t seen for many years. At one end of the spectrum we see investors shrugging off concern entirely and pushing sharemarkets to new records highs — both here and in the United States.

Investor fears of missing out on a market rebound when the outbreak abates appear to have overshadowed rational concerns about disruption being caused to the global economy. Sharemarkets have bet big that this event will be over soon.

At the other end of scale we see a rise in xenophobia and racism as people give in to panic, unfairly targeting people of Chinese descent, without rational assessment of the risk.

The number infections outside China is tiny so far — just over 500 worldwide, with two deaths.

The immediate health risks to the average New Zealander don’t bear comparison with any number of daily risks, from swimming to crossing the road. We fear the unknown.

With such high levels of uncertainty still surrounding the virus’ spread it is not easy to judge what an appropriate level of concern should be.

While the potential for the epidemic to explode exponentially around the world remains it would be foolhardy to dismiss any risk.

In China, and Hubei province in particular, the virus is taking a devastating human toll.

People there deserve our sympathy and compassion, at least.

Beyond that, economic costs to New Zealand are now inevitable. But as with health fears, we need to remain measured in our concern.

The Reserve Bank and the Government yesterday delivered economic assessments of coronavirus.

Both provided calm, cautious responses — as you would hope from figures of authority.

The Reserve Bank in its February Monetary Policy Statement left interest rates on hold.

At this stage it is working to the assumption that the outbreak’s impact will be limited to the first quarter of the year.

If it proves more serious then there is time to cut rates if required, it says.

Finance Minister Grant Robertson and Treasury Secretary Caralee McLiesh offered a parliamentary select committee cautious estimates of the economic damage — at this stage about $250 million, or 0.1 per cent of GDP.

Other economists, including those at the Reserve Bank, forecast a bigger hit.

The Reserve Bank cut its first-quarter GDP outlook by 0.3 per cent — although it sees stronger growth in the second half of the year diluting the final impact.

This, of course, is marginal stuff based on the virus staying largely in China. The real test for NZ will come if and when we get our first case here. We need authorities to stay alert to that risk. All of us though need to remain vigilant to outbreaks of panic — an entirely unhelpful and highly contagious emotion.

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