Finance Minister Grant Robertson has confirmed that the Government is ready to abandon its optimistic forecasts of the economic impact of the coronavirus.
He told Parliament yesterday that we are “ moving more towards the second scenario now, which is based on a longer-lasting shock with global impact feeding through to the economy for the rest of 2020.”
As recently as last Thursday, he was still listing his first scenario as a live option.
That predicted a temporary global demand shock where we experienced a temporary but significant impact on the New Zealand economy across the first half of 2020 before growth rebounded in the second half as exports returned to normal.
And the Government is now also actively planning for a third, worst-case scenario
That would be how to respond to a global downturn.
Because events are moving so fast, the Government is hampered by the lack of up to date economic data.
In a report yesterday Treasury said the impacts on New Zealand could be viewed through three channels: trade, financial markets, and confidence.
“The more persistent the virus proves to be, the larger the effects on activity are likely to be,” it said.
Tourism is the most immediately affected industry.
It says preliminary figures indicate that tourists from China are down to 10 per cent of where they were last year.
Data from NZ Customs clearly shows the impact of the travel ban, with arrivals from China falling to an average of around 200 people per day over the week ended 23 February. This compares with the average of 2,000 people that arrived per day over the same period in 2019.
The percentage of GDP generated by Chinese tourism in New Zealand is third behind Hong Kong and Thailand in the OECD.
Treasury said prices for some goods exports, including meat, forestry and seafood have fallen.
These three industries face the highest risk of disruption due to the impact of port delays and the difficulty in shifting supplies to other markets.
Treasury says the IMF downgraded its 2020 China growth forecast from 6.0% to 5.6%,
The IMF’s base case is that the spread of the virus will be contained in the current quarter, with a bounce-back later in the year as pent-up demand and policy stimulus spurs activity.
But the OECD in an economic assessment yesterday said that it expected Chinese GDP growth to fall below five per cent.
Treasury said that the IMF also noted the impact could be larger (which is what the OECD is suggesting) and longer-lasting leading to more pronounced supply chain disruptions and creating increased uncertainty that depresses sentiment and makes the global impact more severe.
“The strength of the bounce-back may also be impacted by changes in preferences surrounding travel or other global risks, such as renewed trade tensions or increasingly severe and frequent natural disasters stemming from climate change,” said the Treasury report.
Robertson along with the Prime Minister, Jacinda Ardern, met with Business NZ and the Combined Trade Unions last night.
The meeting also included a representative from Hospitality NZ.
Business NZ CEO, Kirk Hope, told POLITIK that they were backgrounded on the various Government moves to assist tourism and forestry workers and, in turn, asked if the Government could arrange to pay its invoices quickly so that cash could be moved into the economy.
POLITIK understands there may have been reservation expressed at the meeting about relying on the Reserve Bank to lead the response with big rate cuts.
ASB Bank Chief Economist, Nick Tuffley, said yesterday that he now expected the Reserve Bank would cut the OCR in coming months.
But, echoing some of the views expressed last night, he said the most effective support for New Zealanders and the NZ economy would come from central government responses, which could be most effectively targeted at the people and businesses most affected by the economic disruption.
There are other issues over how to compensate people in quarantine – and then if they get sick.
Quarantine is for 14 days and the Wellington Primary Healthcare Organisation, Compass Health, advised GPs yesterday that the most severe cases could last for six weeks.
But New Zealand law provides for only five days of paid sick leave.
This was discussed at the meeting on Monday night and proposals are expected to be brought forward on how to deal with it.
Meanwhile, the Tertiary Education Union has reacted against proposals from both Auckland and Victoria Universities to freeze staff or, in Victoria’s case, even consider redundancies now that it is clear that the 4000 plus Chinese students still not in the country for their University education may not turn up.
TEU National President, Michael Gilchrist, said yesterday this was premature and capacity must be retained in these institutions and staff are the most important element of that capacity.
“There are many other ways in which the impacts of the travel ban could be buffered,” he said.
“We agree that government, through the Tertiary Education Commission, has a vital role to play in that process and have asked for a meeting to work out a nation-wide strategy to address the impact of the travel ban.”
But there was some good news yesterday; the Ministry of Health confirmed that the two new suspected cases had tested negative leaving the country, so far, with only one confirmed case.
Dr Annette Nesdale, Wellington Medical Officer of Health, told the Comp[ass GPs that the current Ministry risk assessment was that the likelihood of a sustained transmission of the virus was only moderate and that the likelihood of a widespread outbreak was low.
It is thus more likely that the biggest impact on New Zealand will be economic and that is increasingly looking like it will be severe.