Deadly virus a real threat to national economy

6.00pm - by KENT ATKINSON

The killer pneumonia virus spreading from Hong Kong and southern China poses a "genuine threat" to not only New Zealand business but the nation's economic output, bank economists say.

"The potential impact is large," the Bank of New Zealand's head of market economics, Stephen Toplis, said today.

"Obvious economic impact is already being seen through the tourism sector," he said in an economic commentary . "Airlines, including Air New Zealand, are starting to pull long haul flights as demand drops." The reduction in demand was not all Sars related but at this stage it was a further major blow to an industry already under duress.

Mr Toplis said the disease was on its way to New Zealand, and once here it was unlikely to go away quickly.

"How many cases we get and how New Zealand responds to them may be critical to our overall economic health over the next year or so," he said.

The disease, known as Severe Acute Respiratory Syndrome (Sars), began in southern China in November and later spread to Hong Kong, Singapore, Vietnam, Canada, Germany, the United States, Germany, Taiwan and a few other places.

Mr Toplis said New Zealand would suffer a sharp blow to its productivity if the arrival of Sars coincided with the annual flu epidemic.

"This is likely to result in much higher absenteeism than normal and put much more pressure on the health sector as the normally staunch Kiwi, who wouldn't think of gaining medical attention for the 'flu, feels much more reluctant to let things ride," he said. "Sars could well have a major negative impact on GDP and be yet another reason to assume that there is substantial downside risk to New Zealand's growth outlook for this year and next".

Concerns Sars has has compounded losses for international air carriers and other travel-related businesses already suffering due to the US-led war in Iraq - Hong Kong carrier Cathay Pacific has cut 47 flights a week, a 4 per cent reduction in passenger capacity, and other regional airlines, including Taiwan-based China Airlines and Thai Airways, have cancelled flights to Hong Kong.

A bigger potential problems being discussed in Asia is cutbacks in business travel, which would hit external trade.

In New Zealand's case, international tourism contributes around 4 per cent to 5 per cent to GDP. Mr Toplis said if tourism numbers were to drop, 10 per cent relative to expectations, then this would immediately knock 0.5 per cent from GDP.

"While not a forecast at this stage, it is a very real possibility," he said. New Zealand was particularly vulnerable because 27 per cent of its tourists came from Asia, which until now had been one of the strongest growth areas for tourism inflows. Also at risk was the large number of European visitors who arrived in New Zealand through an Asian air hub, such as Hong Kong or Singapore.

Another impact likely to be felt relatively quickly was the effect Sars was already having on the GDP in three key trading partners: China takes 4.7 per cent of New Zealand's exports, Hong Kong 2 per cent and Singapore 1.3 per cent.

"Any further spread of the illness through Asia will increase our vulnerability," he said.

- NZPA