Liam Dann: Enormity of disaster means all economic bets are off

Retail shops in Merivale are left open to the elements. Photo / Getty Images

Amid the tragedy and debris it feels harsh to talk about economics and daunting to talk about getting Christchurch back to business.

It is sobering to think about fate and the cruel twists which divide the lucky from those who are not.

It plays on my mind that if this quake had happened on Christmas morning my children, my wife and myself would probably be among the dead.

My parents' chimney collapsed and fell into their living room, dumping its bricks on to the rug where two generations of Dann family children have always gathered to open their Christmas stockings.

Despite serious damage to a treasured family home, I am feeling fortunate that my family and friends are all safe and accounted for.

But I'm not sure they are feeling lucky. The challenges of day-to-day living and the shock of watching their homes and their beautiful city fall have left many Cantabrians in despair.

The fear of an uncertain future weighs heavily and there is little on the immediate horizon to lift spirits. People need damage assessed so they can get a sense of what needs to be done. When they have something solid to work towards, morale may lift.

It is the same with the big economic issues. The nation needs to start counting the cost sooner rather than later. The most accurate prediction we can make about "back of the envelope" calculations is that they will ultimately prove inaccurate. But that doesn't make them worthless.

Here's one example. There is talk that Christchurch City had signed off on a $500 million budget to rebuild the sewerage system after the September 4 quake. That was to repair damage to about 5 per cent of the system. Now there are reports that the system is suffering 80 per cent damage.

The calculation that springs to mind is to multiply the bill by 16. Are we facing $8 billion for sewerage infrastructure alone? Probably not.

The true cost will be measured street by street and pipe by pipe. We need to uncover the kind of the damage as well as the scale.

Also there should be economies of scale to fixing these things.

But while simple equations are imprecise they do indicate the enormity. Whatever the final bill, it will be big, bad and unprecedented in this country. Early estimates give officials good cause to take immediate action.

Reserve Bank Governor Alan Bollard is now widely expected to cut interest rates - perhaps by as much as 50 basis points.

The Government will also need to reassess everything. The recovery is on hold, a return to surplus is delayed. To cover potential shortfalls in the EQC's disaster fund, the nation may need to borrow more or there may be need for a special levy or tax.

Thus far money markets have been kind. Ratings agencies have not downgraded us and the dollar has only fallen as far as US75c - within the trading range of the past few weeks.

Banks have offered help to victims with repayment breaks and relaxed terms. On Thursday the nation's biggest corporates met the Prime Minister and pledged their support.

This stability we've seen thus far reflects a faith in New Zealand as a nation to handle this crisis and take the necessary steps to look after the economy. It also recognises that, from big business to small, we are in this together. In the days and weeks to come the strength of this faith will be tested.

The economy was fragile before the events of Tuesday, now it is perilous. As well as strength of leadership from Wellington we will need to see real strength from the nation's business leaders.