Why NZ is more exposed than others to the economic chills of China's coronavirus outbreak
Posted: 19-Feb-2020 |

According to Rahul Sen, Senior Lecturer, School of Economics, Auckland University of Technology "The economic repercussions of the coronavirus outbreak worldwide and for New Zealand are beginning to emerge – and it is already clear that the coronavirus will have a worse impact than the severe acute respiratory syndrome (SARS) outbreak in 2003."

The estimated costs of SARS to the global economy was about US$40 billion. China's share in world GDP at that time was 4%, significantly lower than the current estimate of 17%.

This four-fold increase in economic dependence on China worldwide, primarily because of its status as a manufacturing hub and a key node for production networks in Asia and globally, means that the outbreak is likely to have a bigger global impact on trade, at least in the current quarter.

But over the same period since 2003, New Zealand has become even more economically dependent on China. This is particularly so in trade in commercial services (both exports and imports), with a 12-fold jump in China's share, based on comparisons between historical and the latest Stats NZ data.

In 2003, New Zealand's goods exports to China constituted about 5% of the total, based on historical data from the United Nations. Today, it is about 26%. Any slump in export demand from China in the current quarter will have a much stronger direct impact on New Zealand exporters' earnings, for both trade in goods and commercial services, than for many other countries.

This is already evident. Food exporters are facing declining demand for meat products, forestry, flower and seafood products from consumers in China. The outbreak could also disrupt supply chains of intermediate products New Zealand imports from China and the rest of Asia for agricultural and food production.

As of 2019, China was New Zealand's fourth-largest service export destination, constituting 13% of the country's total exports of commercial services, which includes primarily education and tourism. In 2003, this figure was less than 2%.

While the indirect impact of the coronavirus on New Zealand consumers remains unclear, the direction is likely to be negative. One obvious channel is the disruptions to the supply chains of major consumer goods globally because of China's role as a manufacturing hub.

There are already reports of factories closing in China or facing temporary shutdowns in high-tech manufacturing, including cars, semiconductors and telecommunications. For example, Qualcomm expects negative impacts on demand and supply in the mobile phone industry. These will raise production costs when made in China, and therefore prices for the global consumer.

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