Govt in good position on rebuild: ASB

"Economic activity may well take a hit in the worst-affected areas." ASB economists

New Zealand’s economy should be able to shake off the impact of Monday morning’s earthquake, ASB’S economists say.

They said the most significant damage has been to road and rail infrastructure, including State Highway 1 and the Picton-christchurch rail line.

Fixing everything could take more than a year. But most of the cost would fall to the Government.

‘‘Damage costs are highly speculative at this point, though the prime minister is talking of billions of dollars. We’d expect a heavy weighting of damage to be towards government-owned transport infrastructure,’’ ASB said.

‘‘One positive is that the Government’s books are in a strong position and as a result, the costs are likely to be able to be absorbed fairly well.

‘‘We expect the Government will fund the rebuild using a combination of spare cash, borrowing and reprioritisation costs. This will keep borrowing costs below the full cost of the repairs.’’

But they said the earthquakes were likely to lead to higher inflation.

Freight that could not go via rail would have to go by ship or truck in the meantime, pushing up transport costs. Rail carries about 15 per cent of New Zealand’s total freight movement, so losing the rail link that connects Christchurch with the North Island is a problem.

Reconstruction work would also put more pressure on the construction sector, driving up costs there, too.

‘‘At the margin, we think the earthquakes could increase the odds of another rate cut by the Reserve Bank [RBNZ] next year if economic disruption is greater than we currently anticipate. But, with the broader economy in good shape and the earthquakes slightly inflationary if anything, we continue to expect the RBNZ to keep interest rates firmly on hold,’’ they said.

The economists pointed to the Manawatu Gorge as an example of a similar project to that of clearing the road near Kaikoura. It closed in 2011 because of a landslide and did not open again until the following year. In total, the project cost $21.4 million, which included $5.4m for maintaining alternative routes.

Vision Manawatu estimated the daily cost to the region from the road closure at about $62,000 to $74,500.

‘‘The sheer number and size of the landslides caused by Monday’s earthquakes makes the Manawatu slip pale in comparison,’’ the economists said. ‘‘At this stage, we do not think that there will be any quick fixes.

‘‘If the Manawatu Gorge is anything to go by, it could conceivably take up to a year, if not longer, to reopen the links – assuming that is deemed feasible.’’

They said there was also a risk that the earthquake could put tourists off, although the impact was likely to be small. Overall, New Zealand should recover quickly.

‘‘Barring the Canterbury earthquakes, other recent natural disasters have had little overall discernible impact on New Zealand growth. We largely expect this to be the case again.

‘‘Economic activity may well take a hit in the worst-affected areas … This disruption will be broadly offset by the spike in construction activity required to repair the damage to infrastructure and buildings.’’