Expert Q&A: Economist Brad Olsen on the impact of COVID-19

As China works to contain the novel coronavirus, effects from the spread of the virus are rippling out to New Zealand’s economy.  To explain more, Brad Olsen from economic consulting company Infometrics answers the Asia Media Centre's questions.

Which New Zealand industries could be impacted by the spread of the virus?

The government's announcement of entry restrictions for all foreign nationals travelling from or going through China will cause an immediate and significant short-term impact on tourism. Combined with the coronavirus striking around Chinese New Year that means the travel restrictions are hitting just as the busiest time period for Chinese travel occurs.

Average tourist arrivals from China over January and February each year are usually around 35 to 50 percent higher than the average for the rest of the year but numerous travel bookings have already been cancelled, and a complete lack of Chinese tourist arrivals for at least the next two weeks could well knock tourism spending by $100 million.

At present, New Zealand's export sector looks to be vulnerable to the spread of the coronavirus with both exported goods and services threatened. 

New Zealand’s seafood exports appear to be the most immediately hit, with reports out of China that seafood markets are largely closed and shipments for NZ seafoods are cancelled, while prices for goods such as crayfish have been impacted.

Forestry exports are also likely to shift lower, with New Zealand logging crews stopping work. China takes half of New Zealand's total forestry exports, and so is extremely vulnerable to changes in Chinese demand. Forestry has also been through a soft patch in 2019, with prices falling due to a build up of stock on Chinese wharves. The current hit to demand comes at the same time the forestry industry was working to build prices back up.  

Horticultural exports, such as cherries, are reporting lower expectations and meat exports are being diverted to other markets as import clearance in China has slowed considerably.

The sharp decline in meat exports into China have seen meat processors reduce process volumes. The swift change in the meat market comes of the back of just as swift a change: the African Swine Fever which decimated Chinese port stocks in 2019 have led to increased demand (and higher prices) for New Zealand proteins.

Although dairy exporters have not yet announced any significant changes, many will be watching developments closely to see how Chinese consumption changes.

Port authorities in New Zealand have also noted slower export volumes already.

Chinese tourism in New Zealand
Infogram

Can we predict what the longer term impact could be on these industries?

It’s too early to predict. However, the immediate impact on the seafood industry highlights the real risk that New Zealand exporters face.

Over the past two decades, the importance of Asia, and in particular China, to New Zealand’s trade fortunes cannot be forgotten.

In 2007 (prior to the China FTA coming into force, and the first year that services trade data is available for), New Zealand-China two-way trade totalled $8.4 billion over the year to September. Fast forward to 2019, and two-way trade with China is now four times the size in 2007, rising to $32.7b over the year to September 2019.

Just as importantly, New Zealand’s trade success is intertwined with China’s performance. In 2007, trade with China comprised just over 8 percent of New Zealand’s two-way global trading activity. In 2019, trade with China was just shy of 20% of New Zealand’s global two-way trade. As a result of these close trade ties, our export markets are much more exposed to changes in China’s demand.

The greatest impact will likely be in the tourism sector. Travel restrictions in China and New Zealand, particularly around Chinese New Year, will have dampened visitor activity at a time when Chinese tourism to New Zealand has been falling anyway.

Chinese tourists in New Zealand spend more than other travels on average. International Visitor Survey data for the year ending June 2019 shows that Chinese tourists spent 31 percent more per tourist than the average tourist to New Zealand.

The spread of the coronavirus has been compared to the 2003 outbreak of SARS. How did New Zealand’s economy react then and is that likely to be an indicator of what could happen now?

Concerns over the economic impact of coronavirus on New Zealand only continue to grow, with rising expectations that the impact may be larger than initially expected. After only two months, the coronavirus outbreak has a higher number of infections than the SARS outbreak in 2003.

New Zealand’s economy didn’t suffer a huge hit during the SARS outbreak, with an Australian National University study finding that GDP growth in New Zealand was only reduced by around 0.08 percent in 2003.

However, the SARS outbreak did see tourist arrivals from Asia into New Zealand drop by 11 percent per annum at the peak of the decline over the year to March 2004, with Chinese tourist arrivals falling 22 percent per annum. The difference between SARS in 2003 and the current situation is the importance of parts of Asia on New Zealand’s tourism market.

Back in 2003, Chinese tourists contributed 3.5 percent of total visitor arrivals, compared to 11 percent in 2019. If Chinese tourist numbers do fall due to concerns around coronavirus, this could compound already falling tourist activity and seriously impact New Zealand’s tourism earnings.

The rapid spread of the virus has been met with a much more rapid and comprehensive action to stop the spread of the virus, including widespread travel restrictions both in China and globally.

- Asia Media Centre