Coronavirus impact: NZ economy likely to stall in first half - ASB

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Coronavirus will bring the economy to a halt in the first half of this year before rebounding in the second, ASB Bank said, as exporters scramble to find new markets.

The outbreak would cause a sharp, short jolt to the economy in the half, turning what was looking like an upturn on its head, the bank said.

In the quarterly report, ASB said it looked like the forestry, tourism, education, seafood and mutton industries were the most at risk of suffering fallout from the Covid-19 outbreak, which has so far claimed more than 2700 lives.

ASB ascribed medium risk to the beef and lamb sectors and low risk to the dairy, fruit and infant formula industries.

The most evident impacts were the entry bans for New Zealand non-residents who have come from or transited through China.

February and March are when nearly a quarter of New Zealand's visitors from China come and normally spend about $400 million.

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Forestry and seafood were other sectors feeling abrupt drops in demand.

"Globally, the ramifications are growing," ASB said.

"China's role as the world's factory is meaning some retailers are now struggling to replace stock," it said.

Some factories outside of China that are dependent on Chinese-made parts were being idled and logistics chains have been disrupted, in the short term at least.

"That is our working assumption, which sees economic growth grinding to a halt in early 2020 but rebounding over the second half of the year," the bank said.

"The disruption from the virus will eventually settle. That will be an opportune time to review or develop contingency planning for a range of business risks, and consider the benefit and costs of diversifying export markets and suppliers," the bank said.

"The Covid-19 coronavirus represents a dark cloud on the domestic and global outlook."

More than 10 per cent of the Chinese population at the peak of the outbreak were reportedly living under Government restrictions of how often they can leave their homes.
Already there are signs of a larger, proportionate hit to global tourism from the virus.

Economic impacts are also occurring because of the extensive efforts to contain the virus that will impede the movement of exports and imports of goods and services.

For the NZ export and import sectors, the impacts are likely to be uneven. There could be some disruption for New Zealand imports, given the impact of the outbreak on global supply chains.

"Given the timing of the outbreak around the Chinese New Year Holiday, the impacts are especially acute for the tourism and education sectors."

ASB has pencilled in a 0.6 per cent hit to New Zealand's GDP in the first quarter.

"We assume that NZ GDP growth quickly recovers in Q2 but note the risk of longer-lasting disruptions to NZ exports and broader economic activity.

"The spread of the outbreak to NZ could significantly weigh on wider economic activity."

In the meat trade, exporters have been scrambling to divert China-bound product to other markets.

Shane Kingston, general manager global sales for meat exporter Alliance Group, said Ports at Shanghai and Tianjin remained congested after the prolonged Chinese New Year break.

"There are variable levels of staff back at work across a raft of industries such as processing, logistics and banking sectors.

"It's still very much in a state of lockdown versus normality," he said.

Other world markets were preparing for potential outbreaks and there was heightened awareness in South Korea and Mediterranean Europe, he said.

"That will be the next horizon of concern - how that will play out outside of China," Kingston told the Herald.

Meat exporters have also been hit by drought in parts of the country and Alliance facilities were running at full tilt.

Kingston said the co-op was not suffering from a lack of cool storage capacity.

He said export product was being diverted to other markets, but at substantially lower prices relative to last year's peaks.

"We are very much on target with our sales programme, albeit with a very different mix compared with what we had originally planned."

Beef prices were substantially lower, particularly in the US, where a lot of New Zealand and Australia product has been diverted to.

Softening the blow for exporters has been the decline in the New Zealand dollar.

Since late January, when the impact of the outbreak was becoming clear, the currency has lost about US3c to trade at just over US$63c.

On the import side, The Warehouse Group said the outbreak was not expected to have a material impact on its annual results.

"The group sources product from a diverse range of channels and markets which includes direct sourcing from China, India and Bangladesh, as well as the purchase of branded products that are manufactured, or have components that are manufactured, in China and other impacted countries," the company said in a statement to the NZX.

"At this stage, there is not expected to be a material impact on the FY20 financial results because the group is well positioned with its directly sourced inventory and with branded suppliers," the company said.