Economists say the devastating earthquake in Christchurch on Tuesday has left international markets even more jittery about how the Government, and the economy, will cope with the multi-billion dollar recovery and rebuild.
The New Zealand dollar fell more than a cent on Tuesday afternoon. Short-term interest rates also tumbled and the sharemarket shed 0.7%, with stocks in insurance companies, banks and firms based in Christchurch particularly hard hit.
Market analysts say the reaction was much more severe than in the aftermath of the 7.1- magnitude earthquake on 4 September last year, which the Treasury expected to knock 0.3% off GDP.
The original rebuild, which was only just beginning, was expected to cost more than $5 billion.
TD Securities senior strategist, Roland Randall, says the latest quake has left investors even more fearful about how the Government's finances will cope.
Mr Randall says a return to budget surplus by 2015/2016 becomes more of a stretch and may mean the Government has to borrow more.
Many economists expect the Reserve Bank to hold off raising interest rates until next year, and some think it will make an immediate cut the official cash rate to shore up confidence.
Fitch Ratings says the earthquake will have economic consequences as the Government moves to repair damage, but the costs are unlikely to drive changes to New Zealand's AA+ rating.
