Restoration efforts key to Christchurch's economic recovery

Christchurch Mayor Bob Parker and Prime Minister John Key inspect a collapsed building in Manchester Street, Christchurch after a 7.1 magnitude earthquake struck the city at the weekend.

The speed with which infrastructure can be restored will be key to how the economy fares in the aftermath of Saturday's devastating earthquake, a leading economist says.

The magnitude 7.1 earthquake is a large wealth hit to the Canterbury economy with more than 500 buildings in the city badly damaged, 90 of which may need to be demolished.

Early estimates are that the repair bill from the quake could top $2 billion and GDP will be knocked by 0.6 per cent, before rebounding in the fourth quarter.

"On top of reversal of any business disruption, GDP would likely get boosted by roughly 1.5 percentage points over the next 12 months," ASB chief economist Nick Tuffley said.

Tuffley said the extent of disruption to business in the short-term would depend in part on how quickly key infrastructure could be restored.

Water and sewerage were key concerns, he said.

"Restoring these services will be much more time-concerning due to their underground nature and multiple ruptures," Tuffley said.

Specialised equipment was also likely to take more time to replace, particularly if needed to be imported from offshore.

Meanwhile expectations that the earthquake will result in a boost for the construction sector, could be constrained by the country's ability to produce or import the necessary building materials and by the pool of labour available.

"At present the construction sector is operating at a low ebb. There is therefore plenty of scope to bring in workers from around the country though the main challenge could be housing them."

Tuffley said he expects there will be a surge in retail spending, as households replace damaged household possessions and cars, against a modest loss of personal wealth - including irreplaceable heirlooms.

Soaring demand for some goods and services could cause isolated pockets of inflation, he said.

ANZ says the weakening confidence resulting from the earthquake and the fall-out from the South Canterbury Finance collapse have "sealed the deal for no-change" to the Official Cash Rate at the next meeting.

However ANZ expects it will only be a temporary respite.

"The RBNZ is expected to resume removing policy stimulus either late this year or early next year."

Westpac economists said the disruption to Christchurch had been immense. But the local nature of the event, and a high level of preparedness for it, should limit the implications for financial markets.

Canterbury roughly accounts for 13 per cent of New Zealand's population and economic activity, Westpac said.

- NZ HERALD ONLINE