Coronavirus: Loss of international tourism 'a game-changer' - economist

Graphic of COVID-19
Economist Cameron Bagrie predicts a "massive new normal" for New Zealand. Photo credit: Getty.

With the economy set to take a huge hit from COVID-19, loss of international tourism due to border controls will be a game-changer, a leading economist warns.

His comments come as the country passes the peak of new virus cases and the Treasury announced seven economic scenarios based on a range of times spent at different alert levels.

Summing up the scenarios on Magic Talk on Tuesday, economist Cameron Bagrie said that irrespective of which will be closest to reality, the economic hit in 2020 will be "bigger than Ben Hur".

Referring to the 'best-case scenario', where the country comes out of alert level 4 at the end of the month and spends a month in alert level 3, Bagrie said that the short-term hit will be big.   

"That scenario has got an economic contraction of 4.5 percent of GDP in 2020, another recession in 2021 and the unemployment rate gets up to 13.5 percent," Bagrie said.

"In 2021 and 2022, we're off to the races again: economic growth is strong, the unemployment rate converges back down towards 4 percent by 2024."

As alert levels are lowered, Bagrie said that there are three overlapping stages for how businesses respond. 

"Stage one is crisis management, stage two is [where we] start to look at recovery and stage three is shaking the tree," Bagrie said.

He said that the Treasury's scenarios are purely illustrative and long-term projections contain a degree of 'bounce' that may be on the optimistic side.

"I think there's going to be a massive 'new normal': the idea that growth is going to get back to some sort of magical end-point or number that the Treasury was assuming in the half-year fiscal update by 2024, I think that's just a bit of a stretch," Bagrie added.

New Zealand's economic recovery also rides on the collective recovery of global economies - and each country has its own response.

"Normally, if you see what happens around the globe, when we get into economic strife, the attitude among policy makers, politicians and central banks becomes 'one team one dream'.

"Everyone's broadly with the programme but a lot of countries are being more active in clamping down," Bagrie said.

As COVID-19 levels are lifted, borders are expected to remain closed to travellers: this will leave a gaping hole in domestic revenue but could create opportunities for other industries.

"The international tourism sector is a $17b export earner - it's the biggest one we've got [and] if you roll education [and] foreign students, there's another $4b," Bagrie said.

"This is a big game-changer in regard to how much we need to start thinking about things."

He said that businesses have to think constructively about the various stages of recovery and those that plan, dig in and hunker down could see a better future.

"We've got to start thinking about stage two: recovery and stage three: what's going to be different to make New Zealand a better place?"

By acting quickly to control the spread of the virus, New Zealand's more extreme upfront measures means the economic hit is larger - but this also creates opportunities.

"If we can squash this thing, the brand perception value for New Zealand is going to be immense."

He encourages businesses to think strategically about how they can grow in other sectors, technologies and service-based industries to help "rocket New Zealand out the other side". 

"The old adage [is] never waste a crisis: there's always going to be opportunities on the other side," Bagrie added.

In a Treasury report released on Tuesday, to-date, the number of job-seekers had reached almost 100,000. Almost $10b had been approved or paid to businesses in wage subsidies, for over one million employees.

The report said that in the ANZ business outlook survey preliminary reading for April, business confidence fell by 9 points to -73 percent and a net 61 percent of businesses expect lower activity in the year ahead.

It also showed that a net 54 percent expect to cut jobs and 50 percent will reduce investment. Pricing intentions dropped sharply into negative and inflation expectations fell from 1.5 percent to 1.3 percent.

"We expect business conditions to remain negative for much of 2020, and into 2021 for some sectors," the report said.

"The severity of the downturn will depend on many factors, including our success in eradicating COVID-19, how long the lockdown lasts and what restrictions remain in place beyond the lockdown period and for how long."

March Treasury data also reflected a 3.9 percent drop in retail sales, a 2.1 percent drop in the ANZ world commodity price index, a 2 percent drop in the world meat and fibre index and a 3.4 percent drop in global dairy prices.