The 2011-12 New Zealand budget will revealed on Thursday and for many of our leading banks, insurers, retailers and media companies, it won’t make pleasant reading.
For Woolworths, Harvey Norman, Fairfax Media, APN News and Media, not to mention the big four banks and Suncorp and IAG, the budget will detail just how tough it is going to be for the country in the next coupe of years.
The reason for that is easy to see: the weight of the cost of rebuilding Christchurch after the two massive earthquakes is going to dominate government fiscal policy for years to come with higher debt and higher spending, meaning less available for the rest of the economy.
Hopefully the rebuilding will mean higher growth as the year goes on.
It will be a multi billion dollar, 10 year (minimum) program and will delay the government’s plans to cut spending and the deficit.
It will also have to position the government ahead of the elections due in November.
Last Thursday the country’s Reserve Bank said in its latest Financial Stability Report that the economy faces challenges in the wake of the quakes last September and February.
The insurance sector was hit harder than most after the government was forced to support mutually-owned insurer AMI of Christchurch which had been overwhelmed by claims from the February 22 quake.
RBNZ Governor Alan Bollard said, “Efforts by households and businesses to cut or contain debt are reducing New Zealand’s overall external imbalance, but are also weakening domestic demand. Government too is looking to consolidate its financial position, which should help to improve the country’s overall external position".
Dr Bollard noted the February earthquake had caused financial stress for households and businesses and created a challenge for the insurance sector in dealing with claim flows.
But the banks’ readiness to support recovery in Christchurch was encouraging.
"The February earthquake was an extremely damaging event, and one major insurer with a large amount of Christchurch business (AMI) has required a support arrangement from Government to remove uncertainty about its ability to meet earthquake-related claims.
"The arrangement was also intended to maintain confidence in the broader insurance sector.
"The Bank will continue to assess the implications of the earthquake for the insurance sector over the months ahead," Dr Bollard said.
“Rebuilding will add momentum to the economy and is likely to require access to credit, despite much of the damage being substantially insured.”
