Christchurch earthquake tipped to lift GDP 0.5pc

The earthquake in Christchurch will mean more work for the building sector, which has plenty of spare capacity. Photo / Greg Bowker

The Treasury and ANZ Bank had a stab yesterday at quantifying the impact of the Canterbury earthquake on gross domestic product.

Both emphasised there is a lot of guesswork involved at this early stage, and that GDP does not measure the disaster's impact on wealth.

Both concluded that while the near-term impact is unambiguously negative, the recovery work needed would boost GDP over a longer time frame.

The Treasury expects the hit to activity in the current quarter to be between 0.2 and 0.8 per cent, with 0.4 per cent as its best guess.

But over the year to June 2011 it expects the earthquake to boost GDP by 0.5 per cent, and by a further 0.3 per cent the following year.

Its estimate of the damage is $4 billion, half of which is to private dwellings and their contents, and the other half split equally between damage to commercial property and public infrastructure.

It makes the point that not all of the demand created by the need to rebuild, repair and replace what was damaged will occur in New Zealand. "Replacing a $2000 television will not have a very big impact on GDP as televisions are not produced in New Zealand. Likewise some of the material used to construct buildings will be imported."

ANZ chief economist Cameron Bagrie, having been to see for himself, was impressed at how much of Christchurch had returned to something like business as usual.

But he nonetheless puts a higher figure than the Treasury, 0.9 per cent of GDP, on the disruption to normal activity in the current and December quarters together.

Other channels by which GDP will be reduced include some loss of international visitors, a negative wealth effect as people consume less as they see their net worth reduced, higher insurance premiums and a "last straw" effect on some businesses which were already struggling with the recession and do not survive.

Between them, Bagrie estimates those factors could reduce GDP by another 0.4 per cent.

Then there is the effect on sentiment: "We doubt people are going to be in a hurry to spend a lot over the coming months until they are aware exactly where they stand financial in the wash-up. This is a process that could take months," Bagrie said.

Offsetting that is the boost to the construction sector and spending in durable goods, "which spread over two years is broadly an economic impulse of around 1 per cent of GDP per annum".

The net effect, as a rough guide, would be an increase in GDP of 0.5 per cent altogether over the next two years.