Earthquakes deliver one-two punch for economy

Canterbury's second major earthquake is all bad news for the national economy, economists say.
As with the September quake, initially there will be disruption to commercial activity, and that will be amplified by the hit to confidence. "The lesson of the first quake was that the disruption effect lasted longer than we anticipated," Westpac economist Dominick Stephens said. "And because of the loss of life, and just the ongoing nature of the thing, the effect on sentiment will be much larger."
The rebuilding task, barely under way, was now much greater and liable to be delayed. "While that will boost activity, this is work we did not want to do and merely gets us back to where we were before."
There was now a material chance the Reserve Bank would cut the official cash rate to bolster confidence, Mr Stephens said.
But Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research, doubted that lowering interest rates would help rebuilding in Canterbury. "They still need to go through the insurance process, the assessment, all of those things," he said. "It took about five months to get the reconstruction started after the previous earthquake so there will be additional damage because of this and further delays."
As it was the second big earthquake it raised questions about people wanting to live and work there, Mr Eaqub said. It might be the final straw for some businesses, leading to job losses.
Mr Stephens said the Government bore the cost of repairing damage to capital assets it owned, and some of the cost to local government too. The credit rating agencies might be less tolerant than they were last time of the hit to the Government's finances, given that its rating was already (in Standard & Poor's case at least) on a negative outlook, he said.
BNZ economist Doug Steel said the disruption to economic activity would be massive. "The question is how long the disruption will last," he said. "Clearly its a negative for GDP - but it is negative from a balance sheet point of view as well," he said.
The scale of the damage was still unfolding, but it was apparent that one of the pillars for what the BNZ had seen as quite strong growth this year had collapsed.
The four key drivers were recovery from drought, very strong commodity prices, the Rugby World Cup and the rebuilding of Canterbury after the September earthquake.
"Obviously that rebuild has been delayed significantly."
As a result of yesterday's quake interest rate increases the BNZ had expected for the latter part of 2011 were now likely to be pushed back to 2012.
The Port of Lyttelton has sustained serious damage (see story at right). Mr Steel said some activity might be able to be transferred to other ports, but some would be specific to Lyttelton.
For tourism, the immediate impact would likely be a downturn in visitors from Australia. Christchurch was the main gateway to the South Island.