Tuesday 8 November 2011

Christchurch quake


"No sign recently increased strength in the economy will flag during the rest of the fiscal year" - except if the world economy goes belly up - as it will
.
NZ quake delays cloud economic recovery


By Virginia Harrison, MarketWatch,

7 November, 2011


CHRISTCHURCH, New Zealand (MarketWatch) — More than a year on from the first earthquake that devastated New Zealand’s second-largest city, Christchurch, the ground continues to shake. The center of the city remains deserted and off-limits. Little can be done until the land stabilizes.
The aftershocks, which have exceeded 8,000 to date, are the result of two earthquakes less than six months apart which added up to one of the nation’s deadliest natural disasters.

Later this month the country of 4.4 million heads to the polls. Both the ruling National Party and the Labour opposition have vowed to return the budget to surplus by 2014. But rebuilding the quake-affected Canterbury region could threaten that goal.

Buoyed by its successful hosting of the Rubgy World Cup, Kiwis are optimistic the country can rebound, though the challenge of mounting disaster costs including the recent Rena oil spill and a fragile fiscal position in a turbulent global economy remains.

Christchurch quakes
Christchurch was struck by a massive earthquake in September 2010, followed by another in February of this year, which claimed 182 lives.

The city’s Central Business District (CBD) is ringed by wire-fencing and remains a no-go zone. The skyline is littered by cranes. So far about half of the 1,250 buildings that must be torn down have been demolished.

Residents say the situation is worse than reports, and the government, suggest.

“It’s the biggest natural disaster this country has ever faced,” said Peter Townsend, chief executive of the Canterbury Employers’ Chamber of Commerce (CECC). “I don’t think people who aren’t living this day by day understand the enormity of the situation, and the time it’s going to take to get us back on our feet.”

A new commercial building must be erected every three days for the next 10 years to reconstruct Christchurch, Townsend says.

He now works out of a “business hub,” a sophisticated marquee set up a short drive from the CBD. Around 50,000 people were forced out of the city following the disasters, and temporary offices dot the central fringe.

“The business community has been very resilient,” Townsend said. “[Businesses are] operating from anywhere they can. I had 20 of my staff working out of my home for six months.”

Cost predictions
Last month, the New Zealand Treasury estimated the damage bill from the Canterbury earthquakes would be 20 billion New Zealand dollars ($15.9 billion), up from NZ$15 billion forecast in May.

CECC’s Peter Townsend puts the figure at NZ$30 billion.

“It’s quite obvious when you live here as to the extent of the damage. I’ve been saying NZ$30 billion since February,” he said.

“Once we get through the demolition phase and move into the real recovery, Christchurch will be the construction capital of New Zealand, for the next 10 to 20 years,” Townsend said.

Rebuilding is expected to begin in earnest in the second half of the year, according to New Zealand’s Treasury. That’s up to nine months later than previously forecast, as a result of continuing seismic activity. Earlier this year the government established the CERA — the Canterbury Earthquake Recovery Authority — to manage the reconstruction.

CERA is still gathering momentum,” Townsend said, “You have to put this into context — we’ve never had anything like this in New Zealand, ever. We’re tracking a whole lot of new ground.”

“People are frustrated. But the delay is [about] land stability, aftershocks and insurance, and there’s not a lot you can do about that,” he said.

Even without the disastrous quakes, New Zealand now also faces costs from a major oil spill.

In October, Greek tanker MV Rena ran aground off the country’s North Island, spilling more than 350 tonnes of oil into the sea to become the nation’s worst-ever maritime environmental disaster.

The clean-up bill from the Rena oil spill has so far hit NZ$14 million, and authorities say the environmental impacts could carry on for years.

Rugby brightens outlook
Not all is gloomy for the nation: New Zealand is basking in the glow of its Rugby World Cup victory, which it hosted last month. Rugby is New Zealand’s national sport, and its team — the All Blacks — are national idols. But the win has lifted more than just the national mood: Nearly 100,000 people are expected to have visited for the tournament, according to the Reserve Bank of New Zealand, boosting spending by an estimated NZ$700 million.

The lift to domestic spending as a result of the World Cup is due to show up in the national accounts in the final two quarters of the year. It is also hoped the successfully run six-week tournament will draw more international interest in New Zealand as a host destination.
The All Blacks’ success won’t hurt the ruling National government as it heads to the polls in November either.

Prime Minister John Key — who holds a comfortable lead on Labour opponent Phil Goff — has pledged to return the budget to surplus by 2015. Key has promised a program of debt reduction and cost-cutting, as well as partial privatization of state assets including utilities and Air New Zealand, to bolster the economy.

New Zealand’s deficit widened to NZ$18.4 billion for the financial year ended June 30, government financial statements released last month showed.

Standard & Poor’s and Fitch Ratings downgraded New Zealand’s sovereign credit rating in September, citing worsening foreign debt and domestic economic pressures — making the need to return the budget to surplus more than just a vote-winner.

“Though the government says it is on target to return the budget to surplus, the fiscal position not as good as the ratings agencies would like to see,” TD Securities senior strategist Roland Randall said. “If they do let their return to surplus slip by a year or two, that may put their ratings at risk.”

“You can’t implement fiscal austerity when you really have to spend money to help [Christchurch] get back on its feet. They have to tread that line, between spending the money to get Canterbury rebuilt and appeasing the rating agencies,” Randall said.

Export-led recovery
There are some encouraging signs. In its pre-election economic and fiscal update, the Treasury said it sees no sign recently increased strength in the economy will flag during the rest of the fiscal year.

“Export prices are high, business confidence remains firm, and the Rugby World Cup has provided some temporary support and for services exports,” the report stated.

The Treasury expect growth of 2.3% in the year ending March 2012, up from 1.8% previously forecast. Growth will rise to 3.4% for the year ending 2013, the department said, led by construction and investment in the Canterbury rebuild.

“Looking through [recent month to month volatility] to the underlying trend, the New Zealand economy appears to be growing at a fairly modest, yet respectable, pace of around 0.5% per quarter,” said Nick Tuffley, chief economist at ASB in Auckland.

“The story remains one of a gradual recovery, as households continue their cautious ways, overlaid by the eventual lift in activity to rebuild Canterbury,” Tuffley said.

Prices for the major New Zealand commodities of dairy and meat remain reasonably elevated — New Zealand’s terms of trade are near 25-year highs — but the relatively high Kiwi dollar is a headwind.

Doubts over global growth also threaten momentum in the nation’s export-led rebound.

“Much of New Zealand’s recovery over the past year has been largely underpinned by improved export incomes,” Tuffley said, “There are large uncertainties around the outlook, and commodity prices may fall more sharply if growth in developing Asia, particularly China, slows by more than currently forecast.”

Virginia Harrison is a MarketWatch reporter based in Sydney.

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