New Zealand’s China-exposed economy is already “reeling” in the wake of the coronavirus amid warnings of a major slowdown ahead.
ANZ NZ chief economist Sharon Zollner says there are “clear risks of a larger slowdown or even recession” as the virus spreads, tipping the Reserve Bank to cut interest rates by 75 basis points to just 0.25 per cent by May.
“We are very exposed,” Ms Zollner told AAP.
“28 per cent of New Zealand’s exports go there and we’re particularly exposed to China’s consumers.
“As the news comes in we’re getting more and more concerned. Our best hope is that the disruption proves short-lived, but there’s no question the export-oriented economy is reeling.”
New Zealand Prime Minister Jacinda Ardern is certainly aware of the threat, saying it was “too early” to countenance a recession but admitting it remained a possibility.
“We are not predicting the worst but we are planning for it,” she said, announcing a range of measures on Monday after returning from her whistle-stop visit to Sydney last week.
She will lead a weekly kitchen cabinet meeting devoted to the government’s response, while teeing up crisis talks with business bodies and unions on Monday night.
A small amount of funding has been made available for regional industry groups.
Ms Ardern also announced the country’s travel ban to China and Iran would be extended for another week, while visitors from South Korea and northern Italy will be asked to quarantine themselves on arrival for a fortnight.
“We know self-isolation works,” Ms Ardern said.
“Someone from northern Italy wishing to travel to New Zealand as a tourist, the message to them now is your first two weeks will be completely stationary.”
Amid calls to relax the restrictions on movement as the economy – particularly the tourism and education sector – struggle, Ms Ardern’s position is that “public health remains our primary focus”.
New Zealand has just one positive case of COVID-19, an elderly person who had visited Iran.
They are in an Auckland hospital with a “stable and improving” condition.
Health officials have now contacted each passenger that sat near the person on their inbound flight, and none are displaying symptoms of the virus.
So while the immediate public health prognosis is good, economic forecasts are gloomy.
Ms Zollner said the crisis had grown into a truly global shock.
“It’s very difficult to know when China will get back to normal production. Our research team in China estimate they’re running at about 20 per cent of usual capacity,” she said.
“The slower (the recovery), the greater the odds we will have shortages of t-shirts and Barbie dolls but also some important intermediate goods like building goods and machine parts.”
The higher education sector is among the hardest hit to date.
The University of Auckland is bracing for a $NZ35 million ($A33 million) shortfall – and possible job losses.
“That’s a significant number of staffing positions,” vice chancellor Stuart McCutcheon told Radio NZ.
“It’s going to hurt the University of Auckland and the other universities as well and I’ll be very surprised if we don’t see hiring freezes or slowing of hiring becoming quite common across the university sector.”