If there is one word which sums up the Treasury's analysis on how the Canterbury shakes will affect the economy, that word is uncertainty.The initial impact on GDP is uncertain but it is likely to be downward. And then upward. Probably.As noted, there i
If there is one word which sums up the Treasury’s analysis on how the Canterbury shakes will affect the economy, that word is uncertainty.
The initial impact on GDP is uncertain but it is likely to be downward. And then upward. Probably.
As noted, there is a fair amount of uncertainty sloshing around the place right now and it looks like crowding out any sure take on where the economy might be heading in the wake of the 300-odd jolts which have hit the South Island over the past nine days.
Perhaps in a bid to minimise the uncertainty, the Treasury’s report spends a great deal of time on the bleeding obvious.
“The amount of damage will influence the amount of recovery and repair activity that will take place over the next couple of years,” the report, released this afternoon, states.
There are some numbers but these are highly tentative. The current quarter could see a drop in GDP of anywhere from 0.2% to 0.8%, “with the 0.4% impact our best professional judgement.”
To be fair, the Treasury’s analysis takes place in an environment when the entire outlook for the economy was already looking – here’s that word again – uncertain. One example will suffice: six weeks ago the economic recovery, although wobblier than previous recoveries, was looking sufficiently robust for virtually all private sector economists to be confident in predicting further interest rate rises from the Reserve Bank this week, with several more before Christmas.
As of today, none of them are.
So getting a fix on just what the shakes in Canterbury might do to overall economic growth is difficult.
Usually after a major earthquake tourism takes a hit, but unless an aftershock takes out Jade Stadium, next year’s Rugby World Cup should offset this, providing an opportunity to show New Zealand is not badly affected by the shakes.
The work involved in rebuilding after the earthquake should provide a boost to GDP – something which has been the focus of a great deal of often-superficial comment – but the Treasury’s analysis reminds us that the “stimulus” from this can be exaggerated.
“While the reconstruction work associated with the earthquake will boost GDP, it is worth noting that the earthquake has negatively impacted wealth. What we will be seeing is the economy working a bit harder to offset a reasonable amount of the welfare loss caused by the earthquake, that is, the stronger growth is required to get back some of what we previously had.”
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