Canterbury economy faces $600m hit after earthquake

Wednesday 22nd September 2010

The short-term income-loss cost due to business interruption from Canterbury’s earthquake will be about $600 million over the September/October period according to Westpac economists.

Chief economist Brendan O’Donovan based the region’s short-term loss on a common metric of 15% of the infrastructure and property capital damage, which in Canterbury’s case is an estimated $4 billion.

“The economic impact on business will be diverse,” O’Donovan said.

“Smaller firms, particularly in retail and wholesale services, and real estate and businesses services, and those that have no immediate ability to relocate functions, will be particularly hard hit. Large firms have reported fairly limited disruption to their activities and export capacity does not look to have been materially affected.”

Canterbury’s damage has been estimated as $2 billion to residential land, property and contents, compared to a capital value of $60 billion, $1 billion for commercial and industrial property damage compared to an estimated capital value of $15 billion across the Christchurch City, Selwyn District and Waimakariri Districts and $1 billion for council and government infrastructure, which is estimated to have a capital value of $4.6 billion.

Two weeks after the initial earthquake, 2,737 homes out of 220,000 Canterbury dwellings are unliveable, 3,053 homes aren’t weatherproof, 51 Christchurch CBD buildings have been declared unsafe and 62,015 claims have been lodged with EQC.

Westpac’s O’Donovan said there will be an enormous lift in activity in the Canterbury region over the next couple of years as the region works towards restoring its capital stock.

“The region will be the recipient of substantial income transfers, from EQC payouts, central government footing the lion’s share of infrastructure repairs, local insurance and international flows from reinsurance,” he said.

However, rebuilding is likely to be spread over a number of years and the local boost may not end up being as large as the damage cost due to some people being uninsured, some choosing not to rebuild and some previously planned work being delayed or crowded out, he said.

Based on multiplier effects, the stimulus to the national economy from Canterbury’s misfortune would be less than $4.1 billion, but still substantial.

That the disaster has occurred at a time when there is substantial excess capacity in the construction sector should help mitigate the degree of flow-through of a local spike in construction costs into the rest of the economy, he said.

“The Reserve Bank will ‘look through’ the direct inflationary effects,” O’Donovan said.

Businesswire.co.nz

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