Liam Dann: Coronavirus sucks but we need to confront the economic risk

The coronavirus outbreak is affecting imports and exports from China. Photo / AP

Coronavirus sucks. I'd love to be writing about something else.

But it's impossible to pull business topics out from under the shadow of the epidemic.

There are many things to dislike about the situation, first and foremost the health risk and death rate.

For business writers, health concerns and sympathy have to be taken as given while we work through the economic implications.

But it's not much fun. The situation is too grim for the puns, one-liners or ironic twists I'd usually rely on to lighten up heavyweight topics.

Newspaper columns are fueled by strong opinion, but personal views on a likely outcome seem futile.

Donald Trump with members of the president's coronavirus task force. Photo / AP

We can present possible scenarios but doing so with any certainty would be a sham.

I'd attract considerably more attention if I declared boldly that this is all overplayed and will be over in two weeks.

Likewise, if I warned of a massive death toll and global recession, I'd be busting the Herald's readership charts today.

People are desperate for certainty.

But the best scientists at the World Health Organisation can't predict what happens next so I'd take media pundits with a big grain of salt.

This is a unique phenomenon now.

Past outbreaks like Sars and H1N1 can provide a rough guide to how markets react but, even if the virus was the same (and it's not) the world is a difference place now.

Sometimes there is comfort to be found by digging into the statistics.

If you are under 50, female and don't suffer any chronic respitory conditions then the mortality rates look much better than the often quoted 2 per cent average.

But then if you are an older male smoker it doesn't really pay to look too closely.

It's encouraging that the number of active cases has been falling for the last week and the recovery rate rising.

That suggests things may have peaked in Wuhan.

A woman in a face mask walks across an empty intersection in Wuhan in central China's Hubei Province. Photo / AP

But that's after more than two months, thousands of deaths and a draconian quarantine regime that would be very hard to impose in a liberal democracy.

So the prospect that the outbreak has peaked at the epicentre doesn't offer much comfort while hotspots remain in Japan, South Korea and Italy.

Another uncontrolled outbreak outside of Hubei would extend economic disruption by weeks or months – blowing out the forecasts of economists and making a recession much more likely.

Economists have already quietly moved their base case scenarios from a "first quarter of the year" shock to a "first half of the year" shock.

There are still grounds to think there might be a strong v-shaped recovery.

We can take heart that this is not a banking crisis and credit markets are still functioning.

That creates scope for propping up business and consumer demand to maintain economic momentum.

But there are also issues with the supply side of the economy due China's production shut down.

Businesses all over the world will be running short of parts and components, which threatens their ability to keep operating.

In New Zealand an extended period of disruption sets up a test of relative strength for two distinct ends of our economy.

In one corner we have the New Zealand residential property market sector weighing in at a massive $1 trillion and driving the wealth effect which had the economy on a consumer-led roll heading into this year.

Workers disinfect subway trains against coronavirus in Tehran, Iran, where an outbreak has occurred. Photo / AP

In the other corner we have the productive economy - the export sector, including tourism and education - which earns the countries foreign exchange.

The property-addicted consumer economy tends to dominate the local landscape - something economics writers are always moaning about.

But right now it might be our best hope of getting through this year without a recession.

So if I had to pick a personal reason to dislike this outbreak it's that it throws the weight of our economic hopes back on the wrong end of the economy.

Suddenly we're relying on momentum from the house prices, wealth effect and credit-fueled consumer spending to pull us through.

That's almost the opposite of the Global Financial Crisis.

During the GFC, tourism and dairy exports pulled us through while a credit crunch stopped the banking and property and construction sectors in their tracks.

Right now, New Zealand's property and construction sectors are both in full swing.

The Government is in spending mode, interest rates are at record lows.

But you don't need to be a PhD in economics to know that the country can't live with an export sector downturn for long before it starts to do lasting damage.

Jobs are real the issue.

We're all buffered from the economic impact of this kind of external shock until we lose our job.

That's already a reality for some in the forestry and tourist sector.

Iraqi health officials and Civil Defence staff wearing protective suits prepare to spray disinfectant as a precaution against the coronavirus. Photo / AP

That's where the Government needs to be focused with its efforts to stimulate and support the economy.

Across-the-board tax breaks – or so-called helicopter money – might give consumer spending a boost.

This kind of stimulus has the advantage of being quick and easy to administer.

But it's not where its needed right now.

Homeowners are still revelling in the wealth effect of rising house prices and lower mortgage repayments.

It's small businesses and their staff that we need to help through this difficult time.