Quake costs uncertain but economy can ride them out video


Prime Minister John Key addresses the quake relief package for businesses in Wellington

The costs of the recent earthquakes are "highly uncertain" but the economy can cope with them relatively easily, an economic think tank says.

Senior Institute of Economic Research economist Christina Leung said in her quarterly outlook report that New Zealand is looking forward to several years of strong annual growth of 3.5 per cent. 

Kaikoura took the biggest hit in the earthquakes because of its tourism dependence. Tourists spend $32,000 per resident compared with the national average of $5000.

New Zealand can comfortably absorb the cost of damage around Kaikoura, NZIER says.

New Zealand can comfortably absorb the cost of damage around Kaikoura, NZIER says.

Estimated earthquake costs will be modest compared with the Christchurch earthquakes and the Government should be able to "comfortably" absorb its share of an estimated $2 billion cost, Leung said.

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Fixing Kaikoura's infrastructure will be about a third of the cost of Christchurch's damage, with EQC picking up many costs, she said. 

Exports will be affected by protectionist policies of trading partners like the US, according to economic forecaster NZIER.

Exports will be affected by protectionist policies of trading partners like the US, according to economic forecaster NZIER.

Damage to Wellington buildings and business interruption will be offset by engineering work, sales of emergency supplies, and rising construction,

In Auckland strong concrete sales reflect growth in residential and commercial building driven by high immigration, with construction becoming a main driver of the economy overall, Leung said.

"The government's books are in good shape because of $1 billion higher than expected tax revenue than previous Budget forecasts," the report said.

"We forecast government revenue to grow on average 3.2 per cent per annum for the next five years ... spending has been tight and if this trend was to continue, core government spending as a proportion of GDP by 2021 would be at its lowest since 1974." the report said.

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Leung said this meant means the Government should still have room for tax cuts going into election year.

Businesses were generally optimistic with dairy prices increasing, and manufacturing on the rise as the exchange rate eased. 

Tourism remained robust despite Kaikoura's quake problems.

Inflation expectations had picked up and Leung said it would will reach 2 per cent in 2018. Further Reserve Bank interest rate OCR cuts were are unlikely after the last cut taking the official cash rate to 1.75 per cent.

Wage growth will pick up "meaningfully" from 2018 as labour shortages worsen.

Forty five per cent of workers saw no wage growth over the past year, most notably in the unskilled sector partly, due to immigration, Leung said.

But rising protectionism in the United Kingdom and the United States will lead to easing export growth over coming years following the shock election of president Donald Trump as the next US President, and the Brexit vote.

"While Trump has vowed to bring back jobs to America by limiting cheap imports and incentivising manufacturing firms to retain domestic production rather than go offshore, any increase in domestic production is likely to come from the adoption of technology rather than through mass job creation.

"It is unclear which policies Trump flagged prior to his election he will follow through on. The Trans-Pacific Partnership Agreement is highly unlikely to go ahead in its current form, given Trump's proclamation last week that the US won't participate.

"This is negative for the New Zealand export sector, particularly our meat producers given beef makes up a substantial proportion of New Zealand's exports to the US," Leung said.

Meanwhile, an OECD report  forecasts growth in New Zealand of 3.5 per cent this year and 3.4 per cent next year before declining to 2.6 per cent in 2018.

 - Stuff


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