NZIER expects virus and drought to put handbrake on

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The combination of the Coronavirus outbreak and drought in many regions of the country is expected to deliver a short sharp shock to the New Zealand economy, as detailed in the New Zealand Institute of Economic Research’s quarterly predictions.

“Exporters are expected to bear the brunt of the effects, and we expect activity will be flat in the March quarter,” principal economist Christina Leung says.

“Although we expect the effects to linger over the remainder of 2020, as they lessen over time growth should pick up from the March low.”

Leung notes that it is early days and there is a large degree of uncertainty over the magnitude and duration of the effects from the 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 Coronavirus has any persistent negative effects on global growth.

The NZIER says the fundamentals for the New Zealand economy are still strong.

Prior to the Coronavirus outbreak, households had been feeling more optimistic in light of the pick-up in housing market activity.

Business confidence was recovering as businesses felt more positive about the Government’s plans, with the announcement of $12 billion in future infrastructure spending.