Canterbury earthquake – economic impact

The latest Treasury estimates put the cost at around 4 billion dollars, approximately half of which is the Earthquake Commission’s estimated liability. The remainder is divided among insurance companies, central and local government, households and business owners (some of the cost will be met by reinsurance policies). Furthermore, it is estimated that the earthquake will wipe around 0.5 percent from gross domestic product in the September 2010 quarter (although they do note that there is a lot of uncertainty around this figure). According to the NZIER (New Zealand Institute of Economic Research), the Canterbury region contributes around $27 billion to New Zealand’s gross domestic product (approximately 15% of national GDP). There may also be a short term inflationary impact, as demand for certain goods and services outpace supply (e.g. tradespeople such as builders and electricians), although there is currently spare capacity in the building sector. Concerns have been raised about the impact on confidence. Any sizeable fall in confidence could lead to a reduction in consumption and investment expenditure, adversely affecting economic growth (and employment).

There was no significant impact on either the exchange rate or sharemarket (although the price of building related stocks rose, and insurance stocks fell). There is a real risk that some businesses will fail in the short term, due to:
(i) an inability to effectively operate due to damage or lack of supplies, and
(ii) a reduction in demand.

Adapted from the Monthly Economic Review September 2010 – Parliamentary Library Reserach Paper

Leave a Reply

Your email address will not be published. Required fields are marked *