Quake could be good for economy

BY HAMISH RUTHERFORD
Last updated 13:42 06/09/2010

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The Canterbury earthquake is likely to cut New Zealand's economic growth in the coming months but will have a positive impact in the longer term as repairs take place, economists say.

Stephen Toplis, head of research at Bank of New Zealand, said while the personal costs of the earthquake were often extreme, this did not translate into macroeconomic damage, which appeared to be more limited and mostly short term.

"If you look at the macroeconomic perspective, you probably come to the rather perverse conclusion that this is going to be GDP [gross domestic product] positive,'' Mr Toplis said this morning.

While the Canterbury economy is likely to be hit by business being closed, staff being absent and general disruption to the central business district of Christchurch, in the longer term the boost to the construction sector as buildings are repaired would more than offset the short term losses, Mr Toplis said.

"Once you get past that [short term impact], the clear macroeconomic costs are construction. If the initial estimates are anywhere near accurate... that will swamp the short term negatives.''

Most economists are predicting the cut in earnings caused by the earthquake will be 0.2-0.5 per cent of GDP in the coming months, but that over the next 12-18 months the kick start to the reconstruction sector could add more than 1 per cent to economic growth.

Cameron Bagrie, chief economist at ANZ, said while  ``an awful lot of growth has been displaced'' in the short term, the net impact overall would be positive as the reconstruction effort begins.

Mr Bagrie said consumer confidence in the region was likely to be hit by the earthquake, which came just days after the collapse of South Canterbury Finance. Visitor numbers could also be impacted.

"If there's an area that we will be watching pretty closely, it will be tourism arrivals; Christchurch accounts for about 22 per cent of visitor arrivals in New Zealand, it's a bit of a gateway, but I don't think its going to be on the top of a lot of people's travel hot spots at the moment,'' Mr Bagrie said.

The markets reacted calmly this morning, with the New Zealand dollar dropping just marginally against our major trading partners, while the NZX-50 was up 0.7 per cent at 1:30pm.

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