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Treasury talks down economic benefit of Christchurch earthquake

Monday 13th September 2010

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Any economic benefits derived the 7.1 magnitude earthquake in Christchurch earlier this month doesn't negate the destruction of wealth caused by the natural disaster, the Treasury says.  

In an economic brief outlining the impact of the Canterbury earthquake, the Treasury said that even though the construction work associated with the quake will boost the economy, the earthquake has "negatively impacted wealth."  

"What we will be seeing is the economy working a bit harder to offset a reasonably amount of the welfare lost caused by the earthquake, i.e. the stronger growth is required to get back some of what we previously had," the note said.  

The Treasury expects September gross domestic product to shrink 0.4%, its best pick out of a range of contractions between 0.2% and 0.8%, followed by seven quarters of extra growth.

The recovery phase is forecast to lift GDP 0.5% over the June 2011 year, and 0.3% in 2012.  

The earthquake is assumed to have caused $4 billion worth of damage, of which private homes and their contents suffered $2 billion, commercial property and public infrastructure were hit by $1 billion bills each.

The Earthquake Commission, which takes on partial liability from the levy it charges on insurance premiums, expects its exposure to be between $1 billion and $2 billion.  

Fitch Ratings expects the earthquake will push up the reinsurance costs for major local insurers Suncorp-Metway and Insurance Australia Group. Suncorp expects the disaster will cost it a net $60 million, while IAG says the impact is negligible. 

Treasury has a team of four working specifically on costing the earthquake, though more information is being fed into unit from the wider department. The government department said it expects the earthquake will have a small upward impact on inflation, though it didn't quantify this impact. 

Businesswire.co.nz



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