Business confidence has tumbled. Consumers on balance are pessimistic. The number of permits issued to build houses has sunk to a two-year low. The effects of Christchurch earthquake are reverberating across the country.
The New Zealand economy will take a king-hit from the quake - $15 billion and counting. Output in the nation’s second-largest city has plummeted – people are out of work, businesses have lost their premises, the tourist trade has collapsed. Christchurch was a magnet for Asian tourists, a perfect backdrop for wedding or honeymoon photos, a gateway to the South Island playgrounds.
Those in the city say the pictures shown on the TV suggest all the damage was restricted to the CBD. Instead, it spreads far out into the eastern suburbs and across to the shattered port town of Lyttelton.
Given all that, it is no surprise that business confidence in Canterbury has collapsed. But businesses nationwide are also doubting they can increase profits this year, according to the latest surveys. Some expect to have fewer workers in 12 months time.
It won’t be until May 5 that the government statistician releases employment data for the first quarter. The jobless rate unexpectedly widened to 6.8% in the final three months of 2010. The Reserve Bank’s latest forecast has unemployment staying high through the first few months of 2011.
So it’s all looking a bit bleak - but not on every front.
Reserve Bank Governor Alan Bollard says he acted “pre-emptively” in slashing the official cash rate last month to prevent the quake’s economic impact becoming more severe. While such accommodative monetary policy will need to be removed “once the rebuilding phase materialises,” the action underpins a competitive exchange rate, just when agricultural export prices are booming.
The government’s commitment to rebuilding is clear, is the adequacy of the nation’s insurance arrangements. Real money will flow into Canterbury – from insurance, from the government, from business.
For example, Fletcher Building, New Zealand’s biggest construction company, has seen its shares rally to a three-year high. That’s even after saying it would miss its full-year earnings guidance because the Feb. 22 quake had disrupted work underway from the last tremor in September.
Meanwhile Fonterra, the biggest company in New Zealand with sales ($16.7 billion last year) more than twice that of Fletcher is on track to deliver a record payout to its farmers this season, thanks to soaring global prices of food commodities.
Natural disasters worldwide, unrest in the Middle East and choking sovereign debt in some European nations have done nothing to sate a hungry world. While prices may be near their peaks, there’s little sign yet to suggest any sort of collapse from current levels.
To be sure, the economy would be on a stronger track had the Canterbury earthquakes never hit, and there would be more Asian tourists arriving if it weren’t for the Japanese earthquake and tsunami. But rebuilding is a shot in the arm when it comes, interest rates are once again very low and, for now, global prices for New Zealand’s soft commodities are high. There’s every chance growth comes roaring back in 2012.