The pace of economic growth could be slowed by the virus
With the existence of coronavirus in different parts of the world, it’s not surprising that some would be concerned about the extent of its impact. Independent economist Tony Alexander has warned that the outbreak could affect not only people’s health but also New Zealand’s tourism and economic growth.
He explained that the reduction in tourism due to the outbreak could “reduce the ability of businesses to raise prices,” leading to reduced inflation. There could also be “less chance of higher interest rates this year and the return of a possibility that rates get cut.”
“The negative economic impact to come from the new virus outbreak increases the chances that there will be another easing of monetary policy this year. A cut in the cash rate at the next review on February 12 is extremely unlikely, and while the Reserve Bank will note the downside risks, they will probably be quite reluctant to signal a new bias toward lowering rates – given what is happening in the housing market,” Alexander explained, as reported by Good Returns.
“The main impact of the virus outbreak is likely to be some declines in medium to long-term bank borrowing costs. This week such declines only amounted to around 0.05% so as yet market impact is minor. We wait and see.”
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Alexander predicted that the outbreak would hit regional housing markets relying on tourism.
“All up, at the very margin, a virus outbreak looks like a net negative for housing markets in tourism-focused locations like Rotorua and to a lesser extent Queenstown and Wanaka,” he continued. “But elsewhere in the country the interest rates effect and potentially tiny net migration effect could be a small net positive – unless the outbreak develops into thousands of people dying offshore with no clear end in sight.”
