Swine flu could extend recession by half a year, says Westpac

Friday 19th June 2009

The swine flu pandemic could extend the New Zealand economy’s recession by one or two quarters as the toll on the labour force comes to the fore, according to a bank forecast.

Westpac Banking Group predicts the outbreak of H1N1 influenza earlier this year could cause gross domestic product to shrink by between 1% and 2% this year as employees are forced, or choose, to take time off work.

Although estimates range from 20% to 60%, around 30% of the population is expected to contract the virus, compared to the 5% of adults who typically suffer from the flu in a normal year.

“New Zealanders seem to be treating the outbreak as an inconvenience rather than a catastrophe, suggesting the labour supply impact from the illness will be the main issue,” the bank said in its report. “At this stage it does not appear likely that well people will fear the virus enough to make significant changes to their daily behaviour.”

The outbreak of swine flu is the first influenza pandemic in 40 years, with 141 deaths from nearly 30,000 cases around the world. New Zealand has confirmed 153 cases around the country, with a further 19 regarded as probable.

The government will announce new moves to manage the virus today. The World Health Orgnaisation declared the virus to be “unstoppable” and warns it could mutate into a more dangerous form at any time.

The bank warns there could be a drop-off in consumer demand if people avoid public spaces for fear of contracting the illness, although any actions that delay and reduce the spread of the virus would shorten its economic impact.

Exports could also be hit, with the tourism sector particularly vulnerable, the bank said. Air New Zealand, the national carrier, reported a decline in long-haul passenger volumes earlier this week as fears about swine flu discouraged travel on Asian and British air-routes.

Westpac warned the outlook was “very difficult to gauge” and if the virus caused an unseemly number of deaths, there would probably be “large drops in service sectors”.

Businesswire.co.nz

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