Construction sector under quake pressure

Slips across State Highway One and evidence of the lifted sea-bed, caused in the November 14 7.8 earthquake, north of Kaikoura. Photo / Mark Mitchell

The economy has largely escaped any short-term fallout from last week's earthquakes but it is likely to put considerable extra pressure on the nation's already stretched construction sector, says ASB chief economist Nick Tuffley.

"So we can expect construction costs to be growing faster," Tuffley told the the Economy Hub.

The other big issue was the break in the transport link.

"The really big challenge coming out of this earthquake is what it has done to key transport links and the greater expense that is going to be involved getting goods down there," he said. "So there is a likelihood of a little bit more consumer price inflation, especially in the South Island."

The was now an opportunity now for the Government to rethink the transport network, said Rickey Ward, JBWere head of NZ equities.

"They've pretty much got a blank sheet of paper," Ward said.

There was effectively "dead land" on the route from Picton to Christchurch, he said.

Coastal shipping had a lot of merit, transporting out of a central hub like Lyttelton. There would inevitably be a political aspect to that but it made sense financially, Ward said.

The Government did have to make some big choices, Tuffley said.

"There will be things that will have to give."

We were fortunate that Bill English had worked hard to get the country back into surplus with a view to coping with these kind of shocks, he said.

There was scope to borrow more money.

"New Zealand looks very good from the point of view of a global investor with very good returns and not a lot of risk."

In its initial report ASB economists estimated that inflationary effect would offset the short-term GDP hit, meaning the Reserve Bank remains likely to leave interest rates on hold. However, they note that if the economic disruption turns out to be greater than currently anticipated then it could increase the odds of a cut.

But the dollar held firm in the aftermath of the quake - despite trending down as the US currency rises in advance of an expected interest rate hike by the Federal Reserve.

Meanwhile, the New Zealand stockmarket had held up well with limited impact for a few specific companies, Ward said.

Broadly the market had stayed focused on the international trend - which was all about the prospect of rising US interest rates.

"So Fletcher Building, Metro Performance Glass - oddly enough bounced despite not being concentrated in a major centre," he said. "One surprise was Opus International, it is a civil engineering company, it didn't re-rate up on the day but has risen 15 per cent subsequent to that."

The NZX-50 closed up half a per cent yesterday to 6,883.25 - its highest point since the US presidential elections.