Y2K will make small hit on GDP, Treasury thinks

Assuming a 'high degree of readiness', disruption from Y2K-related computer failures is likely to shave around 0.1 to 0.3 of a percentage point from New Zealand's GDP, Treasury thinks. But Treasury deputy secretary Iain Rennie said yesterday that the 'high level of uncertainty' made quantifying the millennium bug's impact difficult.

Assuming a "high degree of readiness", disruption from Y2K-related computer failures is likely to shave around 0.1 to 0.3 of a percentage point from New Zealand's GDP, Treasury thinks.

But Treasury deputy secretary Iain Rennie said yesterday that the "high level of uncertainty" made quantifying the millennium bug's impact difficult.

Releasing Treasury's initial assessment of Y2K's impact on the economic outlook, Rennie said there would be several key economic effects, apart from Y2K related failures on 1 January 2000.

Treasury notes "altered expenditure patterns as businesses gear up for the turn of the century," bringing investment forward and possibly displacing other more productive investment. This will add around 0.1-0.3 percentage points to GDP in 1997,1998 and 1999 but will have a similar negative impact from 2000, said Rennie.

Treasury also anticipates "behavioural effects", such as stockpiling, "driven by consumer and investor perceptions" – adding about 0.3 percentage points to GDP growth in the last part of 1999 but lowering growth by a similar amount in early 2000.

"Estimates of Y2K's economic impacts are well within the range of other shocks which can and have hit the New Zealand economy from time to time. Recent examples include the drought and the Auckland power crisis," said Rennie.

"None of the effects we've identified so far is likely to have a significant effect on the economy provided New Zealand is well prepared.

"But while we think the overall effects will be small there is still the possibility of major disruption for individuals and businesses. That just emphasises the importance of making sure key systems are Y2K compliant." Rennie said.

Treasury will be incorporating its quantitative analysis into the Budget Economic and Fiscal Update and says it will keep a watching brief on developments and revise its view "if necessary".

Treasury's Y2K project was carried out in three stages: a commissioned literature review/report from NZIER PriceWaterhouse Coopers, a report to Ministers and a peer review by Infometrics, all available at http://www.treasury.govt.nz

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