Coronavirus, drought to deliver 'short, sharp shock' to economy - NZIER

New Zealand's economy should brace itself for a "short, sharp shock" as the effects of the deadly coronavirus and the drought are predicted to flatten activity.

The New Zealand Institute of Economic Research (NZIER) has released its latest quarterly predictions which warn growth in the March quarter will be "flat" due to the two combined factors. The lasting impact, however, is largely up-in-the-air. 

"The combination of the COVID-19 coronavirus outbreak and drought is expected to deliver a short, sharp shock to the New Zealand economy," a statement from the NZIER says. 

"It is early days and there is a large degree of uncertainty over the magnitude and duration of the effects from the coronavirus outbreak. 

"In the short-term, the uncertainty revolves around the ability of exporters to redirect their exports to other markets. Over the longer-term, the uncertainty is whether the coronavirus has any persistent negative effects on global growth."

Coronavirus - which has infected more than 80,000 people and killed about 2700 worldwide - emerged in the Chinese centre of Wuhan. New Zealand's tourism market and ability to export dairy, meat, and forestry products has been impacted by travel and trade restrictions. 

The importance of the Chinese market was highlighted earlier this month, with figures from the Meat Industry Association showing a large increase in the export of sheep meat and beef to China. Sheep meat exports to China grew by 40 percent to $1.6 billion for the year, and beef by 113 percent to $1.7 billion. The trade of seafood has also been impacted.

"We have assumed trade disruptions occur mainly over the first half of 2020, while the travel ban on Chinese tourists and international students are in place over February and March with visitors gradually coming back on board over the remainder of the year," said the NZIER.

"We have also assumed the coronavirus outbreak has no lasting damage to global growth, and in turn demand for New Zealand exports. Developments which suggest these assumptions do not hold would likely mean a larger impact on export demand, and in turn weaker GDP growth in the New Zealand economy."

To stem the economic impact of the virus, the Government has already announced an $11 million package for Tourism New Zealand to diversify its marketing to other visitor markets.

Meanwhile, parts of Northland, Auckland and Waikato are suffering from a drought, which has a large impact on farmers. 

"We do expect that will have a negative impact on milk production over the first quarter and potentially in the second quarter of 2020 as well," principal economist Christina Leung told Newshub.

Some Northland fathers have been culling stock suffering in the conditions. Water and feed reserves have been running low. Northland Federated Farmers' Louise Giltrap told Rural Today that farmers are rapidly using up surplus feed for stock.

That drought should be broken soon with rain expected in March.

"We're already seeing an increase in afternoon showers and more are coming this week. We see more easterlies [associated with rain and storms], humidity and showers in March in northern New Zealand in particular," said WeatherWatch's Philip Duncan.

Despite the virus and drought likely having some impact, the NZIER says the fundamentals of the economy are still strong and business confidence has been recovering, especially with the Government's recent infrastructure spending announcement.