Coronavirus prompts caution

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Coronavirus is casting a shadow over regional economics, including Waikato, that are showing signs of turning a corner according to the latest Infometrics Quarterly Economic Monitor.

Slight improvements in some regional indicators show that renewed strength may be on the cards in 2020. However, the risks associated with the novel coronavirus COVID-19 outbreak threatens to derail any rebound, with expectations for softer export earnings in the first half of 2020.

“Over the 12 months to December 2019, a few indicators have showed renewed promise, indicating a change of fortunes and faster economic growth may be coming,” says Infometrics senior economist Brad Olsen.

“Faster growth in traffic volumes, house prices, and tourism spending all point towards a bit more heat coming into regional economies towards the end of 2019.

Chris Joblin: “One of the big things for us is making sure that our team is safe.”

Chris Joblin: “One of the big things for us is making sure that our team is safe.”

“However, travel restrictions and difficulty getting New Zealand’s exports into China, as a result of the COVID-19 outbreak, look set to pull the rug out from this potential revival of economic growth. Tourism activity is likely to drop lower, and New Zealand’s larger trading footprint with China means primary sector exports are at greater risk, with dairy, meat, forestry, and horticultural exports all experiencing issues.”

The risk of coronavirus remains a key area to watch in the first half of 2020, with dairy and meat prices falling in recent weeks, Olsen said.

“We expect export revenues will soften further over the first half of 2020, but look set to rebound strongly in the second half of the year.”

Hamilton & Waikato Tourism chief executive Jason Dawson said major accommodation providers and tourism operators are starting to experience the loss of group bookings out of China due to coronavirus.

“There is also a knock-on effect from other key international markets, as well as corporate international travel.”

China is the region’s fourth largest international visitor market and spent $52.6 million for the year ending November 2019. However, Dawson said the domestic market is a key one for the Waikato with New Zealanders making up 76 percent of annual visitor expenditure into the region.

“As an industry, we are regularly monitoring and reviewing the situation closely. The whole tourism sector is providing regular information bulletins to everyone involved in the visitor sector – from accommodation providers through to tourism operators.”

Waikato Milking Systems director Chris Joblin said the virus was affecting the company’s business in China, where it has about 30 percent of the dairy rotary platform market share.

“Obviously at the moment, we can’t send our people to China to do installations,” he said.

Waikato Milking Systems has about 120 staff in China, none of whom have contracted the virus. “We’re just reassessing constantly how we service our global clients, and one of the big things for us is making sure that our team is safe.”

But he warned that coronavirus has the potential to impact a number of businesses in the region as supply chains get strained.

Peter Miller, chief financial officer for PF Olsen, which is a forestry service provider with about 10 percent of the market, says shipping has been truncated and logs are taking a lot longer to ship to China.

He said sawmills and processing plants that were coming back on stream after the Chinese New Year will have been affected by restrictions on their workers’ ability to return. “Therefore those plants can’t in theory resume operations in order to start chewing through the volume that’s sitting on the port.”

He said there will be layoffs. “We’re still harvesting but our harvest volumes will start to get cut back and that will have an effect on the contractors that we use to do to do work for our clients.

“There will be some crew losses out of this.”

Olsen said supply chain disruptions are becoming apparent. “There is a risk that, if the outbreak persists, consumer and business confidence may take a hit as a contagion effect takes hold and reduces economic activity. With COVID-19 cases still rising, the end of the outbreak and the economic impact on New Zealand remain highly uncertain, but the first half of 2020 is likely to see markedly lower economic growth.”

Reserve Bank Governor Adrian Orr, speaking at a joint Waikato Chamber of Commerce and Institute of Directors lunch, said the signs for 2020 were good before coronavirus appeared.  Global growth had been slowing from around 4 percent per annum to 3 percent, but was stabilising, so the “heavy headwinds” for New Zealand had eased. Terms of trade have been at record high levels, he said, and monetary policy had been incredibly stimulatory and “ended up with a friend, fiscal policy” with the government spending more, particularly on infrastructure. Asset prices, including house prices, were rising. Economic activity of around 2 percent was forecast to head toward 3 percent. Meanwhile, inflation at 1.9 percent is close to its midpoint and employment is at, if not slightly above, its maximum sustainable level.

“And then this coronavirus COVID-19 came out.”

Orr said the Reserve Bank is part of the core government response, with the lead coming from the Health Ministry. He listed three questions for consideration: “What do I need to be doing when the challenge is to keep it out? What do I need to be doing when the challenge is to stamp it out? What do I need to be doing when the challenge is to contain it?”

He also said liquidity will help. “So talk to your bankers and make sure that they don’t start sucking that away from you.”

• Waikato tourism operators can stay up-to-date on the visitor information via Hamilton & Waikato Tourism’s website: www.waikatonz.com/coronavirus
• See ‘Coronavirus communication: getting it right’ here

Construction supports Waikato growth

Waikato’s economy grew 3.2 percent over the 12 months to December 2019, according to provisional estimates from Infometrics.

Construction activity in Waikato continued to support activity, with double digit growth in the number of new dwellings being consented. Business activity also looks solid, with investment by businesses strong, says Infometrics senior economist Brad Olsen.

The value of non-residential consents rose 14 percent over the last year, more than double the national rate, as expansion into the Waikato continues.

The primary sector is also supporting local growth, with a rising farmgate milk price expecting to add $430m to the pay-out in the 2019/20 season.

Waikato and the east coast of the North Island led regional economic growth over the 12 months to December 2019, although Tasman region continued to see the fastest regional economic growth.

Expectations are for slower house price growth after 2020 and a reduction in construction levels over the medium term, as the housing shortage is addressed by current levels of building activity.

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