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Over the past week the coronavirus Covid-19 has spread to more countries, New Zealand has recorded its first cases, and travel bans have become more widespread. All of that has further dented economic confidence. Economists at Westpac Institutional Bank update the economic impact of coronavirus.

Key quotes

“We have further reduced our GDP forecasts to reflect more severe effects on travel, export commodity prices, and confidence. We are now forecasting a 28% drop in visitor arrivals. We have reduced our March quarter GDP forecast to -0.2%, and our forecast of annual GDP growth over 2020 to 1.9%.” 

“We have long expected that the Reserve Bank of New Zealand would cut the OCR to 0.75%. We predicted that the cut would be delivered on March 25 in response to Covid-19. Today we are shifting to forecasting a second 25bps OCR cut, in May.”

“Markets are questioning whether the RBNZ might cut the OCR at an emergency meeting before March 25, or cut by 50bps on that date. We don’t regard either scenario as likely.”