Treasury details economic impact of earthquake

There is likely to be a small upward impact on the rate of inflation given increased resource pressure, particularly in the Canterbury region, as a result of the magnitude 7.1 earthquake in Canterbury this month, Treasury said.

Treasury made the statement in a note on the economic impact of the quake, which reiterates the $4 billion cost figure that emerged last week. It has not quantified the inflationary impact in the note.

Economists have said that because of the collapse of South Canterbury Finance, the earthquake and other factors the Reserve Bank of New Zealand will leave the official cash rate (OCR) unchanged at 3 per cent when releasing its Monetary Policy Statement on Thursday.

The Treasury note is optimistic that the Rugby World Cup event next year will counter any impact on the tourism industry.

Natural disasters tend to discourage tourists, Treasury said.

"However, next year the lead up to the Rugby World Cup, and the event itself, will provide a good opportunity to showcase to potential tourists that Canterbury (and New Zealand) is still a good destination to visit," the note said.

The earthquake will reduce New Zealand's September quarter gross domestic product (GDP) by 0.4 percent relative to what would have been the case in the absence of the earthquake occurring.

This is a "best professional judgement". A range of scenarios put this figure between 0.2 percent and 0.8 percent.

But Treasury says that recovery and repair work over the following three quarters will more than offset the decline in GDP in the September quarter, boosting GDP in the year to June 2011 as a whole.

In the year to September 2010 the annual level of GDP would be 0.1 percent lower than it would have been.

"Despite the negative impact on GDP, we still expect GDP growth in the September quarter to remain positive," Treasury said.

It breaks the $4 billion cost figure down to $2 billion worth of damage to private dwellings and their contents, $1 billion of damage to commercial property and $1 billion to public infrastructure.

- NZPA