The Christchurch earthquake will cost at least $NZ4 billion and cut third quarter economic growth by around 0.4%, according to the country’s Treasury yesterday.
But that is likely to still leave the country with a small positive growth figure for the current quarter as the rest of the country continues to recover.
Fourth quarter growth is likely to be impacted as well and the overall detraction from growth could be much higher, according to the department.
The magnitude 7.1 quake’s cost will be made up of $NZ2 billion worth of damage to private dwellings and their contents, $NZ1 billion in damage to commercial property and $NZ1 billion to public infrastructure.
Much of the damage bill to private dwellings and commercial buildings will come from the $NZ15 billion NZ Earthquake Commission.
"The Earthquake Commission (EQC) estimates their exposure, which relates only to insured private dwellings and their contents, to be in the $1 billion to $2 billion range,’ the Treasury said.
But the department cautioned that the full cost will take longer to finalise.
"We are unlikely to know the full cost of damage for some time as it will take time for all insurance claims to be lodged and assessed.
"A large number of individuals will have lost items of high personal value (e.g. family heirlooms).
"These items may not show up in damage estimates given that their monetary value will at times be relatively small," the department warned.
The national government will be up for the $NZ 1 billion cost of repairing public infrastructure, along with private insurers, if cover was held.
The Treasury said today that any analysis of economic impact is “highly uncertain” and involves a range of assumptions.
The report’s calculation is based on days of lost output across businesses and services such as education, and calculating the loss of value-added production, it said.
“Despite the negative impact on gross domestic product, we still expect growth in the quarter to remain positive,” it said.
But the repair and recovery work is likely to make up for much of the lost growth and the Department says growth could end up higher in the year to next June.
A range of scenarios put the loss of growth at between 0.2% and 0.8%.
But Treasury says that recovery and repair work over the following three quarters will more than offset the decline in GDP in the September quarter, boosting GDP in the year to June 2011 as a whole.
In the year to September 2010, the annual level of GDP would be 0.1% lower than it would have been.
And, the Department says that, "Despite the negative impact on GDP, we still expect GDP growth in the September quarter to remain positive".
The recovery phase will provide a boost to growth of around 0.5% over the year to June 30, 2011.
Reconstruction work will compensate for a decline in wealth and the intangible costs of the event.
But the Department warned that the central recovery scenario may prove too optimistic if it takes industry more time to gear up for reconstruction work.
“What we will be seeing is the economy working a bit harder to offset a reasonable amount of welfare loss caused by the earthquake, that is, stronger growth is required to get back some of what we previously had,” the Department said.
Treasury said there was also likely to be a small upward impact on the rate of inflation given increased resource pressure, particularly in the Canterbury region.
It could also impact Australia if resources, especially trades people, are attracted back across the Tasman to work on the rebuilding programs that will take several years.
Thousands of skilled NZ trades people have migrated to Australia for better wages in better jobs, especially in the booming resources sector.
