Coronavirus can’t just be thought of as an illness for other countries

There was quite a bit of media coverage this morning around the potential economic impact of, and possible policy responses to, the coronavirus.   There have been commentaries from, or interviews with, various economists and a fairly substantive interview on RNZ with Grant Robertson, the Minister of Finance.  Each of them left me a little concerned, but of course the comments from the Minister of Finance –  who gets to decide things and is backed by phalanxes of official –  matter the most.

In his comments at the post-Cabinet press conference on Monday, the Minister indicated that he and his officials were working with three distinct scenarios.   There doesn’t appear to be anything in writing (eg on The Treasury’s website) but broadly the scenarios were as follows:

  • something (probably not too different than the Reserve Bank’s quite-sanguine recent published forecasts) that seems wholly focused on China, and with things beginning to get back to normal next month,
  • something where the effects, perhaps around a wider range of countries, linger for the rest of the year, and
  • a third scenario which he characterised as a serious global recession.

The government is still working with the first of those scenarios, although the Minister acknowledged that the risks of the second scenario looked to be rising.

Many of the other commentators seemed to be thinking along similar lines.  The NZIER, for example, released their quarterly forecasts overnight and their press release says

It is early days and there is a large degree of uncertainty over the magnitude and duration of the effects from the coronavirus outbreak. In the short-term, the uncertainty revolves around the ability of exporters to redirect their exports to other markets. Over the longer-term, the uncertainty is whether the coronavirus has any persistent negative effects on global growth.

And I’ve seen/heard other economists commenting on whether or not GDP growth for the first couple of quarters might or might not be negative (the popular definition of a recession –  more demanding here than in most countries, given our fairly rapid population rate).

But, frankly, it all seems a bit pointless, especially the very short-term forecasting, because all of them –  including the Minister of Finance –  seem to be dealing with a scenarios in which coronavirus is someone else’s health (and attendant domestic disruption) problem, for which New Zealand is only exposed to the global growth backwash.  Of course, that backwash might well be quite severe.   But none of them seem to be grappling with the near-certainty that coronavirus will soon be confirmed in New Zealand (based on what we’ve seen abroad, there must be a reasonable chance it is already here  –  and the Ministry of Health tell us that under their narrow criteria only 120 tests have taken place here).  And, more specifically, none of them is grappling with the possibility that we –  like any city in the world, it appears – could have Korean, Iranian, Italian, Bahrain situations here at any time from today (none of those countries seem to have thought last week that they’d be imposing all the the restrictions they now have).   If the experts who tell us there is now a high chance of a general global outbreak, perhaps infecting 40 to 70 per cent of the world’s population, are correct, probably most cities will face such a scenario.   And those sorts of events have the potential for huge disruption, and economic cost, which would swamp the sorts of narrow effects forecasters like the Reserve Bank have already allowed for.

Take as a scenario a significant outbreak in Canterbury (or Wellington).   Canterbury accounts for about 12.5 per cent of New Zealand’s GDP, and suppose that for a month economic activity in Canterbury is reduced to 50 per cent of normal  (some mixture of schools and daycare centres etc being closed, lots of people being sick or self-isolating because a family member was sick, restrictions on public gatherings, the evaporation of tourist arrivals, and fear).   If that was the only effect New Zealand’s GDP for the quarter of the outbreak would fall by 2.1 per cent –  not annualised, an actual fall of that amount.   That alone would be almost as bad as the worst quarter of our worst recession in modern times in 1991.      You could triple the effect if the outbreak was in Auckland (38 per cent of national GDP).

And even if by some chance the outbreak –  and tough restrictions –  was contained to a single city/region, the economic effects won’t be –  partly about domestic supply chains, partly about transport networks, and lot about precautions and fear.     If there is a Korean or Lombardy style outbreak in Sydney or Brisbane, we’ll already see a lot of costs start to rise rapidly here –  both domestic fear, and how many foreign tourists do we suppose would still be coming here?   So we can’t even assume that even if an individual city’s outbreak takes just a month to work through, that the national effects would be limited to a single month.     It isn’t inconceivable that we –  or small/compact countries like us –  could see the level of GDP fall by 10 per cent or more in a single quarter, and then take quite a long time to recover from the shock of what the society has just gone through.    Quite apart from anything else, that is quite a lot of lost tax revenue, even if 12-18 months hence things were more or less back to normal.

Of course, no one doing quarterly forecasts can allow for these sorts of events in their specific numbers, because we have absolutely no idea whether these scenarios hit tomorrow, next month, June (or, indeed, not at all).   But anyone –  policymaker, business, or householld – thinking about the outlook for the next year would be pretty unwise not to explicitly factor in a fairly probability that exactly that sort of highly disruptive short-term scenario could occur.     And then you have to factor in the near-certainty (so to speak) of extreme uncertainty, and associated disruptions –  forced on individuals or firms, or self-chosen as a precaution – across the world for much of the year ahead.   At very least, a lot of travel just won’t happen, a lot of investment projects will go on hold, and cash-flow/liquidity is likely to be a big issue for many firms and households, whether or not banks are more or less as supportive (or otherwise) in other stress periods.   Whether that will amount to the Minister’s “serious global recession” scenario or not, who knows (but probably, given other underlying vulnerabilities).

In many ways, GDP is just a headline number in thinking about the challenges we face, and in time it is likely to recover more or less fully (even allowing for the limits of monetary policy).  Much the bigger issue in the disruption to lives –  even lives lost –  lost jobs, debt defaults, perhaps stranded sick tourists, overwhelmed health systems, disrupted supply chains for things as (normally) mundane as food.  I suspect policymakers shouldn’t be focused so much on the Minister of Finance’s scenarios –  which in many respects from a New Zealand perspective are fairly vanilla as regards policy responses –  as on handling, and preparing for, the extreme but short-term disruption of actual coronavirus outbreaks here.

(As a reminder here of my post last week with some speculative thoughts on the potential economic ramifications if things go really bad.)

Of course, “preparing for” here should include preparing the public.  So far, both officials and ministers have been almost totally silent on that count.  In the early days, Health officials seem to be more interested in minimising the issue, but even having got beyond that they and their political masters seem to think all these issues are really just matters of bureaucrats, not for the public themselves.  News coverage seems more interested in what the government might or might not do to help currently-affected industries, and media representatives don’t seem to be pursuing ministers on how they will handle (the likelihood of) a significant outbreak here.  There was not a single question along those lines at the PM’s press conference on Monday.

There is, of course, a pandemic plan on the Ministry of Health’s website.   It was last updated in 2017, under a previous government.  It was designed with influenza in mind, and the current virus appears to be different in some material ways.     There is even an explicit appendix (p155f) on “public information management”, including for use at a stage when a pandemic might be looming.  But almost none of the messages mentioned there seem to be being conveyed at present.   There is no evident leadership –  from the Prime Minister, the Minister of Health, or some other minister leading the government’s response –  and no sense of what choices the government might make under what conditions.

As just one example, what approach does the government intend to take around schools and daycare centres?  Some places have closed them pretty quickly –  Hong Kong just extended school closures until April – while other places (notably Singapore) have left them open.   That single choice has big implications for many parents, and for their employers, and yet we’ve heard nothing, meaning no one can plan with reliable information.

Or at a more-mundane level, is there any sign of advice to people to consider stocking up on various non-perishables that might better enable them to cope with a few weeks at home.   Probably many of those paying attention will already be doing so (I certainly am) but a lot of people are probably barely conscious of the issue –  which could be on us tomorrow, or months away.  And what thought has the government given to people without the financial capacity to do much about stocking up –  living from pay cheque to pay cheque –  including if we were to see the sorts of runs on supermarkets you can see photos of from Milan.   If cities are more or less closed down, foodbanks aren’t likely to be available/effective either.    And what are the plans if 10 per cent of the population needed fairly serious medical treatment over a matter of a few weeks?   What plans might community support groups be making now?  Is it wise, or humane, to look at encouraging more young foreigners in now, when we might soon face serious stresses on our own health systems, with the visitors having few/no domestic support networks?  And so on.

There are lots of these sorts of questions/issues. Eric Crampton had a useful post on the point with some more of the relevant questions set out.  Perhaps there is some really effective planning going on behind the scenes, but even if so that simply isn’t good enough in the face of this sort of event, especially when we can all see and read about what is going on elsewhere and the advice being given elsewhere.   How much better to have some visible leadership and open serious conversations about how, as a society, we manage the high likelihood of extremely disruptive, costly, perhaps deadly, events quite soon.

21 thoughts on “Coronavirus can’t just be thought of as an illness for other countries

  1. The most important economic effect on the country arising from the Corona virus will be the lack of cash flow for small to medium sized companies. A prudent thing to do now is to cancel tax payments (not G.S.T) for these companies on income for the last 12 months. If the government losses this economic part of the economy by thinking that last year’s tax money is theirs to spend then the country will be crippled for several years. Leaving money in companies that pay tax means that these successful companies will have a greater chance of survival.

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  2. Who will travel by public transport if they have a car at home? Auckland can anticipate greater congestion despite reduced economic activity.

    Our very successful retirement villages risk becoming high risk zones. Best to keep them isolated as far as possible. It would be worthwhile training the more active elderly in nursing skills and reserving areas in villages as temporary hospital wards. To do so needs some expenditure of govt money now because if/when the epidemic arrives it will be too late.

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  3. Re congestion, the photos of overseas cities – China or elsewhere – suggests the total reduction in travel will totally dominate any switching from public transport to private cars, least once an outbreak becomes a real immediate fear. Mostly one drives or takes public transport to get somewhere, usually a place where other people are, be it work or leisure.

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    • Lockdown can only last so long; when sufficient are infected then it becomes meaningless and of course we all need to eat and that implies work and therefore travel to work. I hope for and reasonably expect a cure will be found however that cannot be assumed. Judging by historic epidemics they can return year after year after year. If we find the world living with a virus that kills say one in 500 every winter for say five years won’t that mean changes in our behaviour? Standing further away when talking (like Swedes not Italians); wearing masks; treating coughs and sneezes like the way we treat gunshots today; avoiding crowded public places such as public transport – why have a risky international holiday involving air travel when you can enjoy a camping holiday in NZ using your own car? In particular we will avoid strangers by which I mean the Chinese and Koreans I know by sight at the local leisure centre will receive their usual nod or ‘Hi’ but the man with an English accent like mine will be shunned until I know his recent travel history.
      When such an epidemic has ended we will retain our preference for stand alone houses over apartments, use of online education over public lectures, cars over buses.

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      • Todays traffic down Dominion Road was great today. The Dominion Road had a smooth flow took me right into the city end in 15 minutes. Hwver, it took a ridiculous 20 minutes to get from one end of Queen Street to the Waterfront.

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  4. Coronavirus is now obviously beyond containment, but WHO remains subservient to China and refuses to declare a pandemic. Meanwhile supply chains are shuddering to a halt. We face a global crisis much worse than the GFC. When the disease is acknowledged to be here it’s spread could be extremely rapid if Italy is anything to go by. We are all immunologically susceptible to it. Septic shock seems to be the main cause of death. It’s time the student politicians who find themselves in government got real.

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    • Can’t buy a new computer these days.
      Won’t be able to buy building supplies e.g. baths, showers, electrical fittings, car parts, let alone medical supplies.

      Huge fall off in trucks going through Tauranga to the port. Lots of mt containers stacked up.

      Plenty of cash for lotto though.

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      • The big $50 million Lotto is on the table this Saturday. Guess I will be investing some of my $200k lotto win previously.

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  5. A week ago it was stated that if coronavirus got into Europe where resistance levels are low, it would spread faster than the speed in Hubei province where resistance level are higher. The same can be said of NZ where resistance levels will be low to zero. In the event it gets a hold in NZ the probability is it will be concentrated in Auckland. The 2019 measles epidemic stretched Auckland Hospital capacity where it was concentrated in South Auckland at Middlemore Hospital. Particularly among the Pasifika Community. A risk assessment suggests any virus outbreak would be mainly in Auckland and concentrated on the North Shore and Waitakere Hospitals. Could they cope? NZ’s health system would get a serious work out.

    Extract Stuff.co.nz
    “The 2019 New Zealand measles outbreak refers to an ongoing epidemic affecting New Zealand, though primarily in the Auckland region”

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    • I am actually starting to think the lockdowns in China is rather exaggerated for political ends. The Hong Kong protests and the slow response in Hong Kong to shut down demonstrations is a clear indication that there is conflict in the leadership and potential for the Hong Kong protests to infect chinas other cities.

      If we look at the history of China, it is made up of segregated militia groups with different cultures and language which means breakaway states are always a threat. We think of Communist China as one country speaking one language and with one culture but they are more like Europe with diverse cultures and languages with the Communist Federal government more like the EU.

      I am being to think the severity of the lockdowns in so many provinces and cities is not due to the virus but due to the central government taking back control. The viral outbreak being the excuse.

      This morning Japan announced that the annual incursion by Chinese military on that South China Sea Island has disappeared this year and they were quite pleased with improving Sino Japan relationships. Clearly the military is busy in China maintaining control. The question is is it really a virus outbreak concerns or an excuse to remove dissidents by just checking their temperatures?

      When China locks down 1 million Uighur muslims the world made a huge fuss but when China decided to lock down 40 million people we all applauded and said China has done a great service??

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      • I watched the latest You-tube video of Chinese government health officials rattling off the novel corona virus infected statistics to a large group of reporters. What surprises me is that none of the Chinese government health officials were wearing masks but all the reporters were. Were they just brave and dumb or do they already have an active antiviral vaccine?

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  6. It also depends on when it shows up and takes hold in NZ. With no land borders and general distance from everyone else we could be isolated and put on a no fly list. How long does our system and society with zero in or out to the rest of the world.

    At the same time, can anyone really form a sensible plan to deal with such an event. Should it get to this point it will be a case of deal with it day by day.

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    • Clearly there are very specific details that will be circumstance dependent, but at present there is no guidance on any aspects of the likely framework – eg view on school closure, or extent of formal movement controls authorities might think it prudent m/feasible to consider.

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      • We are definitely not short of food though. We export 95% of whatever we produce. It would mean cheaper food on the table. Having decided to go minimalist I have not bought any new imported hardware, like TVs or Fridges so I think most of us really do not need that new 65″ TV or new clothing for many years. These plastic clothing we all wear and throw away every few months actually can last a lifetime.

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  7. I don’t think it will really be much surprise about where it the outbreak will be worst and it would be nice to see them demonstrate some planning and start build several large field hospitals in South Auckland. Running a program of preemptively resting medical staff by greatly reducing elective surgery would be a good place to start.

    The near term and long term impacts will be quite interesting, running the numbers for fatality rates against NZ population demographics suggest an 8% fatally rate for the over 65’s verse >0.2% for the under 40.

    This could easily depress global economy for the next 3 to 5 years if it keeps reoccuring much like the flu.

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    • 8%? I think that is rather exaggerated. SARS has a 10% fatality rate but died out with only 1 recovered case of SARS in NZ and no fatalities.

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  8. As with climate change the threat can easily be more damaging than the reality. Given the unknowns the wide, prompt sharing of information and cooperation in handling the issues and solutions that actually arise seems to be the most useful response at present.

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  9. As a leaked chinese govt document showed today (Shandong Province, search epochtimes), the true number of infected in China is up to 50x published figures – in the millions. Most epidemiologists have been expecting this as official PRC data has never aligned with known dates and infectiousness.
    Iran likely has >20000 infected based on numbers of infected found coming out of Iran, and now unstoppable growth. It will sweep their country in next month or two killing a million+.
    You can be certain that there are small but growing infections widespread in the non-testing parts of the world (NZ included) but 3rd world in particular because it presents mostly like flu, and doesn’t become obvious that there is something anomalous until many are hospitalised – at which point there are already 100’s infected (eg Korea, Italy).
    We need to start testing everyone with symptoms ASAP and we need to start quarantining all international arrivals now. Over-reacting now is far cheaper in long term.

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    • I think that’s an overreaction. 10% of the population on blood pressure medication coughs alot as a side effect. These days every time I cough I feel someone will ask for me to be quarantined.

      The normal flu will start soon in winter and people will die from normal flu.

      Normal allergies and hay fever is quite common at this time. People are coughing and spluttering all the time.

      The eateries are starting to see more clientele and businesses are starting to see more customers.

      It is wrong to panic when there is no real evidence outside of China that this is a dangerous disease. I believe China’s 2700 dead are more than likely less than half rather than more. Most are likely hardcore dissidents picked up on the pretext of a viral infection. Its a convenient way to get rid of political opponents

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      • Greatstuff, you need to do a lot more backgrounding before forming an opinion. Everything from epidemiology (known infectiousness and patient zero early december do not even remotely align with offcially acknowledged 278 total cases on 20 Jan) – look at what 6 weeks of unchecked spread up to middle of Jan have done elsewhere (like Iran where estimated 40k now infected after about 6 weeks), when 5million people fled Wuhan prior to announced 20 Jan quarantine spreading it everywhere. If you extrapolate published PRC data back you get patient zero at start of Jan – even though they already had 10’s of cases in one hospital, and doctors whistleblowing in late December, meaning 100’s of actual infections at that point. They are hiding a month of exponential growth.

        Then there are crematoriums working at beyond capacity throughout Wuhan (when a small portion of their capacity would have sufficed for reported numbers).

        Also; overwhelming Wuhan’s 40k hospital beds with just 10k patients (20% of ’45k supposedly not yet ‘recovered’) patients and having to build 10’s of thousands more beds. It goes on and on. PRC lie about everything, propaganda is their lifeblood. Sensible academic epidemiological estimates put the numbers at 10-100x PRC reports – which is corroborated by today’s Shandong leak. Politburo’s grip on power depends on keeping their economy going they will lie to everyone to achieve that end.

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      • I have watched dozens of Youtube videos presented by Americans, Canadians, Chinese, official Chinese officials videos on this subject. Also read a US defence report on bio-weapons. I have come to the conclusion that the threat to NZ is more towards a regular flu ie both are part of the corona virus family with increasing propagation spread threat significantly higher in winter than in Summer due mainly to a fluctuation in the UV sunlight availability.

        The death rate comes from secondary infections from a weakened immunity.

        I don’t doubt that there is an epidemic but then the average flu is also an annual epidemic with already 16,000 deaths in the USA alone. I believe the death rate from the virus far lower than reported by the Chinese officials with a likely a large number of dissidents thrown in the mix to make up the rest of the numbers. I have no doubt these are real deaths but the ordinary flu does kill as well.

        If we look at the Japanese deaths from the infected Cruise which we know are hard core facts. They have 700 infected with 2 deaths. The death rate is 0.28%. The flu is roughly 0.1%. Therefore higher than ordinary flu but not really neccessary to lock down entire cities or countries. I think the usual remedy of a shot of whiskey to clear congested lungs, a Apple cider vinegar in a warm glass of water to stop fevers and a regular cup of coffee to boost immunity usually stops a flu dead in its tracks.

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