New Zealand’s economic growth may almost stall this year, a research group predicted after the government estimated earthquakes in Christchurch caused as much as NZ$20 billion ($15 billion) in damage.
Gross domestic product may expand by 0.3 percent this year, the New Zealand Institute of Economic Research said today. Prime Minister John Key yesterday estimated the cost of the Feb. 22 temblor that devastated much of the city’s business district and killed at least 154 people at as much as NZ$15 billion, triple the cost of a Sept. 4 quake.
Slowing growth, deteriorating government finances and the prospect of an interest-rate cut to bolster a recovery drove the New Zealand dollar down 1.3 percent last week. Christchurch, the nation’s second-biggest city, and the surrounding province of Canterbury contribute about 15 percent of the country’s economy.
“The financial and economic costs of the second earthquake will be significant,” said Shamubeel Eaqub, principal economist at the Wellington-based institute. “Delays in rebuilding will reduce GDP by 0.5 percent each quarter.”
The Reserve Bank of New Zealand’s next rate-setting meeting is scheduled for March 10, and four of eight economists surveyed by Bloomberg News predict the official cash rate will be lowered from 3 percent. Investors see a 100 percent chance of a cut at that meeting, according to a Credit Suisse AG index based on swaps trading.
New Zealand’s economic outlook for this year was revised from a previous 2.3 percent forecast, Eaqub said in an e-mailed statement. Not all the slowdown stems from the quake; the economy was already weak from rising food and fuel prices, he said.
Growth in the six months ending June 30 will be less than the government forecast, Finance Minister Bill English said in a statement yesterday.
“As growth slows, government tax revenue will be lower than expected,” he said. The government also “will bear extra costs to support Christchurch and rebuild the city and its infrastructure.”
Central bank Governor Alan Bollard will cut the official cash rate to 2.5 percent from 3 percent at his next review on March 10 to support the economy, said Robin Clements, Christchurch-based chief New Zealand economist at UBS AG.
“A stronger New Zealand economy will be crucial to the recovery phase in Christchurch,” he said in an e-mailed note yesterday. There is a risk of a GDP contraction in the first quarter that could depress consumer and business confidence later in the year, Clements said.
Buildings throughout Christchurch’s central business district were destroyed by the magnitude 6.3 quake, while houses, power lines and water pipes were damaged. The province was recovering from the September temblor that was magnitude 7, which was centered farther away and claimed no lives.
About 755 buildings in the city center, or about a quarter of the total, have been condemned, according to the Christchurch City Council website. Rebuilding the city could take five to 10 years, the New Zealand Herald reported yesterday, citing an interview with the prime minister.
Key yesterday announced a subsidy plan for businesses unable to operate so they can keep paying wages to at least 42,000 workers for six weeks. The package is made up of two parts, and will cost NZ$100 million to NZ$120 million, Key told reporters.
Lyttelton Port Co. near Christchurch, New Zealand’s largest coal-exporting hub, yesterday resumed core services after infrastructure was damaged. One ship berthed for fuel exchange and two more are scheduled to arrive at the oil berth in the next two days, the company said on its website. Two container vessels unloaded, it said.
New Zealand was unlikely to introduce a separate levy to help rebuild Christchurch because that might slow the economy, Key said. It was likely that the Earthquake Commission levy, an extra charge on house insurance, would double or triple, he said.
“We will pay for this by prioritizing our spending on Canterbury and it may be the case that we take on a bit more debt in the short term,” English told reporters today in Wellington. “We will be endeavoring to deal with the impact of the earthquake within reasonable bounds of the current levels of foreign debt and government debt.”
To contact the reporter for this story: Phoebe Sedgman in Wellington at email@example.com.
To contact the editor responsible for this story: Iain Wilson in Sydney firstname.lastname@example.org