A deadly flu outbreak could devastate the New Zealand economy according to a study by Treasury conducted after the Asian bird 'flu crisis in 2006.
Treasury's study titled, "Impacts of a Potential influenza Pandemic on New Zealand's Macroeconomy" concluded that economic output as measured by gross domestic product could fall up to 15 percent over four years.
The study applied economic models that factored in variables such as the effects of demand and supply shocks, population mortality, absenteeism and "social distancing" - where people alter their daily activities to minimise their contact with others.
Of particular interest to businesses, the study considered the effect of local and international investment, increased costs of doing business and financial stability.
It found that a pandemic on the scale of the 1918 "Spanish 'flu" epidemic, would slash Gross Domestic Product (GDP) by between 5 and 10 percent in the year of the pandemic, reaching 10 to 15 percent of one year's GDP after four years.
In 1918, nearly six out of every 1000 Europeans died and 42 in every 1000 Maori died from influenza. Ministry for Culture and Heritage site New Zealand History Online says, "No other event has killed so many New Zealanders in so short a space of time."
A small, localised outbreak would reduce GDP by approximately 0.7 to 2.1 percent in the first year, "an impact similar to a typical business cycle downturn" says Treasury. This would eventually equate to a GDP loss of 1.1 to 2.8 percent over four years.
Other international studies cited by the Treasury study have reached similar conclusions, depending on the assumed size and deadliness of an outbreak.
Treasury economists were careful to point out the limitations of their study, saying important assumptions had been made, such as the effect on asset prices, behaviour changes and the coincidence of local and international pandemics. These assumptions were based on previous pandemics and may not play out the same way again.
"Furthermore, we have not made any assessment of other potential policy responses to a pandemic shock such as, for example, the benefits of public investment in contracts to develop a vaccine that might reduce the potential extent of labour withdrawal and long-term impact on population and labour supply."
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