Economy might boom like Napier

Canterbury gross domestic product is likely to plummet 2.1 per cent in the September quarter, because of the 7.1 earthquake, an economist says, but the rebuild could lead to a boom.

The 1931 Napier earthquake provides some historical context to a recovery from the September 4 quake, in the view of Westpac senior economist Dominick Stephens.

Chopard Happy Sport Diamond 18kt Yellow Gold And Steel Black Ladies Watch 27/8246-23 Chopard Happy Sport Diamond 18kt Yellow Gold And Steel Black Ladies Watch 27/8246-23

Economists have worked with Treasury's estimate of the cost of the disruptive earthquake being $4 billion, or 2.1 per cent of gross domestic product.

That total is made up of $2b of land, property and contents; $1b for commercial and industrial property damage and $1b for council and government infrastructure.

Stephens said the impact of the earthquake on economic activity would reduce Canterbury's GDP by 2.1 per cent in the September quarter. Nationally GDP would be down 0.3 per cent in the quarter.

But there would be a positive impact in the December quarter and in 2011.

The context of the Napier 7.8 magnitude quake recovery - which stimulated the region and the city's reorganisation - was an important historical starting point, Stephens said.

That quake occurred amid the Great Depression and falling employment, wages and output nationally. Subsequently, the Napier region experienced a massive boom in economic activity and rising wages, though it was two years before the nationwide depression ended.

In terms of Canterbury's estimated $4b earthquake cost, about $2.2b of the "gross output" to cover that cost would be imported (for example via international reinsurance).

The other $1.8b of gross output would be added to GDP. Using a usual multiplier factor of 2.3, this would be an addition to economic activity of $4.1b, equating to 14 per cent of Canterbury's annual GDP or 2.2 per cent of national GDP.

Chopard Happy Sport Diamond 18kt Yellow Gold And Steel Black Ladies Watch 27/8246-23

Economic activity would be elevated through 2011 and taper off later.

"We also expect to see quite a substantial relocation of resources within New Zealand. Some work in the rest of New Zealand is going to be displaced, put on hold while work goes on in Canterbury," Stephens said.

With 2500-5000 households displaced there would be upward pressure on rents and possibly even a short-term upwards pressure on house prices in the Canterbury region.

UBS New Zealand senior economist Robin Clements said the Reserve Bank and others had rightly pointed out Canterbury's capital stock or wealth had been eroded.

Forecasts that Canterbury and New Zealand GDP would grow from the fourth quarter did not take into account the fact of that capital loss, Clements said.

"I think (Reserve Bank governor) Dr Bollard sort of said that if natural disasters were good for New Zealand, I'd be out promoting them. The benefit or the silver lining comes simply because you've got to rebuild it - that's what GDP measures."

Richard Mille Watch

Clements, who with his wife Sue also runs a luxury bed &Christian Louboutin Shoes
Christian Louboutin Shoes