NZ economy shaken but not deterred

Media release
14 April 2011

NZ economy shaken but not deterred

• February’s earthquake will delay NZ’s economic recovery
• Lower interest rates and high commodity prices will support recovery
• Massive reconstruction effort set to boost growth from 2012

The February earthquake in Christchurch has reshaped the economic outlook, delaying the recovery by three to six months, according to the latest ASB Quarterly Economic Forecast.

ASB Chief Economist Nick Tuffley says that along with delaying rebuilding following last year’s earthquake in Christchurch, the February earthquake has caused substantial disruption to business activity, reduced confidence and is currently impacting tourism in the region.

“The February quake, like last September’s, hit at a time when the economy was struggling to retain the momentum of the initial rebound from recession,” he says. “The economy will take a considerable hit in the short term through the disruption to numerous Christchurch businesses.  Some businesses will not reopen, shrinking the economy’s productive base.“

However, Mr Tuffley is positive on the outlook for 2012. “Key ingredients are in place for a gradual recovery in New Zealand’s underlying economic momentum.

“The second half of this year will start to show improvement, with the Rugby World Cup providing a large injection of tourist dollars around the country.  Rebuilding Christchurch into a character-filled twenty first century city will also pour a huge amount of money into that region for years to come.”

Mr Tuffley says that conditions for commodity exporters are also positive. “The rural income story is very strong and will eventually filter through the economy. But in the short term, the income impact will remain diluted until farmers become comfortable with their debt levels and have a little more confidence to spend.

“Lower interest rates will help lift the national housing market out of its torpor.  That, in turn, will assist in giving reason to increase construction in areas such as Auckland where population growth continues.

“Interest rates will remain low for much of the next year after March’s 0.5 percent cut in the OCR. Our best guess is the OCR will now not rise until March 2012.  We expect the Reserve Bank will keep this cushioning in place until the economy is truly on the mend and reconstruction is firmly underway.”

ENDS