Rising cost of coronavirus
When China sneezes, the financial aphorism goes, the world catches a cold. Now China is in the midst of a literal and novel flu outbreak and it and the world are rushing to contain the sickness, the cost – both human and economic – is mounting quickly.
There have been well over 20,000 cases of confirmed coronavirus worldwide and infection, as modelled by The Lancet, is likely much higher.
Some 500 people have died from the virus. New Zealand, with no confirmed cases, has shouldered only the cost of containment so far.
The tourism industry has felt the single largest effect. China has banned group travel abroad and last weekend New Zealand closed its borders to travellers from mainland China and anyone transiting through it. But the consequences of the shuttered Chinese economy are beginning to bite across other sectors too. The extended Chinese New Year holiday – as well as an estimated 60 million people under quarantine conditions in their cities and bans on travel and public gatherings – mean Chinese buyers, including factories and consumers, are suddenly purchasing less from New Zealand and the world.
It is now denting the price of important New Zealand commodity exports. Sheepmeat and beef prices have been falling. Dairy prices began to slide this week and, more drastically, log exports to China have been halted entirely.
China is by far New Zealand’s biggest export market and the prices for all our main commodities are sliding. All of that has economists recalibrating their figures.
And while they are not talking recession – defined as two consecutive quarters of negative economic growth – the numbers are starting to move in that direction.
Several weeks ago Dominick Stephens, chief economist at Westpac Bank, was figuring on gross domestic product growth of 0.7 per cent in the first quarter of the year. He did not make a formal recalculation at the beginning of this week but he said on Monday he would have eyeballed it at about 0.3 per cent. On Tuesday he dropped his estimate to 0.1 per cent.
And while Stephens and Westpac estimate strongly rebounding growth of 0.9 per cent in the second quarter, Stephens was clear: the short-term economic picture has deteriorated so rapidly it makes prediction tricky.
Economists at ANZ echoed that sentiment, calling developments ‘‘fast moving’’ and ‘‘highly uncertain’’.
A key question is: when will ordinary travel with China resume?
An estimated 11,000 Chinese students are due to take up places at New Zealand universities later this month. Chinese students are the single largest cohort of foreign-fee payers in the New Zealand education system. And, behind Australians, Chinese tourists are the second largest group of foreign visitors.
The tourism sector, now flooded with cancellations, accounts for as much as 10 per cent of the country’s GDP, through direct and indirect channels, according to Tourism NZ.
Westpac’s revised GDP picture is predicated on zero arrivals from China for two months, followed by half the usual number in the third month. But the room for revision remains enormous.
Australia-based aviation consultant Neil Hansford estimated the delay in resuming normal travel levels could be even longer. Hansford was sceptical that Australia or New Zealand would lift the travel ban within a few weeks.
And even then, he said, many travel routes between Australia and New Zealand and China would remain closed as airlines would have mothballed services. Some, including Qantas and Air NZ, are already suspending their flights through to the end of March.
‘‘Once the governments lift their bans, it will take as much as 120 days to restore any sort of volume. Then we are into winter. Do people who have had their holiday cancelled really want to rebook? It will be a very slow process.’’
Cost estimates for an unknown volume of cancellations are bound to be fluid, according to independent economic commentator Tony Alexander. But he warned not to over-estimate the difficulty.
‘‘When things get tough in the world economy oil drops, and we have seen that, and the kiwi dollar drops, and we have seen that,’’ he said. ‘‘Those two things will help keep New Zealand exports moving.’’