6 Sep 2010

Lower economic growth now expected after quake

2:55 pm on 6 September 2010

Economists and business leaders predict the Canterbury earthquake will lead to a rash of business failures and cut economic growth this year.

But Radio New Zealand's economics correspondent says it is not expected to tip the economy back into recession and could even provide a boost next year as rebuilding gets under way.

Treasury says the cost of fixing infrastructure, business assets and houses could exceed $2 billion. But that figure could rise once disruption to the wider economy, such as loss of trading, is added.

The Canterbury Chamber of Commerce is predicting business failures.

Growth forecasts for the economy this year are expected to be hit, but improve next year as rebuilding accelerates.

But with thousands of buildings and houses affected, skills shortages could push up inflation.

The ANZ says the Reserve Bank should resist raising interest rates in response.

Shares in construction firms have risen sharply as investors anticipate extra work. An adviser at Macquarie Private Wealth, Brad Gordon, says trading in the likes of Fletcher Building, Opus International Consultants and insurer Tower have pushed along the sharemarket.

However, the dollar fell a third of a cent to 71.8 US cents and 10-year government bond rates jumped a tenth of a percentage point amid investor concern about increased government borrowing needed for reconstruction.