Quake effect on GDP initially negative then a boost - Treasury

The Christchurch earthquake is expected to have a "negative impact on GDP in the September quarter of around 0.4%," according to the Treasury.

Describing the economic effect and damage estimates as "highly uncertain" at this early stage, the Treasury said recovery and repair work over the following three quarters would be likely to more than offset the initial negativity, boosting GDP in the year to June 2011.

Treasury said it estimated a total of $4 billion worth of damage had been caused by the 7.1 magnitude quake - about $2 billion to private dwellings and contents, and $1 billion of dame each to commercial property and to public infrastructure.

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 percent when releasing its Monetary Policy Statement on Thursday.

The Treasury note released today 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.

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.

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