COVID-19 VS ECONOMIC FORECASTS

The outbreak of coronavirus COVID-19 has turned the first half of the year, at least, on its head.  Avoidance behaviour and China’s extreme isolation measures are both markedly affecting China’s economy and starting to cause disruption to global supply chains.

According to ASB Bank’s quarterly economic forecasts, the most evident impacts for New Zealand are the entry bans for non-residents that have come from or transited through China.  February and March are when nearly a quarter of New Zealand’s annual visitors from China come and normally spend about $400 million. The travel bans have vastly affected the retail, tourism and hospitality trades.

Forestry and seafood are other sectors feeling abrupt drops in demand.

China’s role as the world’s factory is meaning some retailers are now struggling to replace stock.  Some factories outside of China that are dependent on Chinese-made parts are being idled.

Where to from here?  The impact of viral outbreaks tends to be sharp but also short.  The working assumption sees economic growth grinding to a halt in early 2020 but rebounding over the second half of the year.  Only time will tell if the ‘short’ part of that assumption is right.

ASB has advised that businesses should be vigilant for shifts in demand patterns, check-in with key suppliers to understand their exposures to Chinese-sourced products, and map out alternative customers or suppliers if practical.  For anybody heavily affected, talking to their bank sooner rather than later will keep open more options for sustaining through the disruption.

The disruption from the virus will eventually settle.  That will be an opportune time to review or develop contingency planning for a range of business risks and consider the benefit and costs of diversifying export markets and suppliers.