24 May 2020

New Zealand Economics Comment

Aussie tourists would help a recovery

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Paul Bloxham

Paul Bloxham

HSBC’s Chief Economist, Australia, New Zealand and Global Commodities

As new COVID-19 case numbers in both Australia and New Zealand are now very low, there is active discussion about lifting the travel restrictions between the two countries. Opening up trans-Tasman travel could deliver significant support for the beleaguered local tourism sectors, particularly for the much smaller New Zealand economy. This could be especially the case if Australians do not have the option of going elsewhere. The total spend by Australians on international tourism in 2019 to countries aside from New Zealand was worth around 15% of Kiwi GDP. Only a small redirection of this spend to New Zealand would be economically significant for the Kiwi economy.

Tourism is one of the sectors that has been hardest hit by COVID-19. In New Zealand, tourism is estimated to account for around 10% of GDP (including domestic tourism and indirect effects - direct spending by overseas tourists is worth around 3.5% of GDP). With the borders closed and the country having been in lockdown, activity in the tourism industry is likely to have almost completely stalled recently.

However, with very low new COVID-19 case numbers, the economy is now on a gradual path to reopening. The daily average of new cases has been just two per day over the past week and of the 1,500 confirmed and probable cases that have been identified since the virus arrived, there are only a handful of remaining cases of the virus in New Zealand.

Although fully opening the international borders is still a long way off, and probably not until at least 2021, an earlier opening of travel across the Tasman Sea is being considered. This reflects that Australia has also made good progress containing the virus -- Australia's cases are below 20 new cases per day over the past week and some jurisdictions in Australia have very low active cases of COVID-19 -- ACT has none, South Australia and NT have less than 10 active cases and Western Australia has less than 20.

Australian visitors play an important role in New Zealand's economy. In 2019, Australians accounted for 40% of international visitors to New Zealand. The next largest sources were China, at 10%, and the US at 9%. Visitors from Australia tend not to stay as long and spend as much as those from further afield, but still accounted for 21% of New Zealand's tourism income in 2019, ahead of China at 16%.

Australians are also typically avid international travellers and with limited options, New Zealand could be an even larger beneficiary of this. In fact, Australia is a net importer of tourism services – Australians spend more on overseas holidays than foreigners spend visiting Australia. In 2019, Australians made 11.6 million overseas trips, while there were only 9.5 million visitor arrivals into Australia (so, for Australia, tourism imports should fall more that tourism exports in Q2).

Importantly, if Australians are unable to travel elsewhere, but are able to go to New Zealand, this could see a significant rise in Australian visits to New Zealand, to above the normal rates.

For New Zealand, which has just one-fifth of the population of Australia, reopening border movement to Australia - at a time when other international visit options are constrained for Australians - would be likely to deliver an economically significant boost.

To put it in perspective, Australians spent close to AUD50 billion on overseas travel in 2019. That is around 16% of New Zealand's total GDP. Of this total spend, only around AUD4 billion went to New Zealand. So if even only an additional 10 or 20% of that spending is diverted to New Zealand over the next year it could deliver a material boost to the Kiwi economy.

Disclosure Statement:

Analyst certification

The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Paul Bloxham and Daniel Smith

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  • This report is dated as at 04 May 2020.
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