NZ 'worse off' after quake: Bollard

A brick building at 90 Riccarton Rd, Christchurch is demolished after being damaged by the earthquake. Photo / Greg Bowker

The Reserve Bank says New Zealand is "worse off" as a result of the 7.1 magnitude earthquake in Christchurch, repeating the Treasury's warning over earthquake-related growth.

The natural disaster will add unnecessary inflationary pressures in construction and private rents in the Canterbury region, as well as causing $4 billion worth of damage to residential, commercial, and government property, the central bank said in a break-out in its September monetary policy statement.

Retail and business services, along with water and waste infrastructure were the hardest hit, though farming is at risk if damage to irrigation systems impacted on agricultural production over the summer season, the bank said.

The Reserve Bank expects September GDP to be about 0.3 per cent lower because of the earthquake, with a 0.5 per cent to 1 per cent gain from reconstruction in the March 2012 year.

"While GDP is likely to be higher than otherwise during the reconstruction period, it is important to stress that in aggregate New Zealand is worse off, not better off as a result of the earthquake,"
the bank said.

"While GDP is higher as a result of the earthquake, this extra activity reflects repairs to the capital stock, not a net improvement in the wealth of New Zealanders."

That echoes Treasury's sentiment in its economic cost of the quake earlier this week, when the department said the earthquake destroyed a great amount of wealth.

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

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