Counting the damage

This week has been an eventful one for us here at Infometrics.  Even though our Wellington office is closed, we’re still up and running, working from home.  The same, unfortunately, cannot be said for Statistics NZ – their building has sustained severe damage and a few data releases have been delayed this week.  These recent events have prompted us to focus on New Zealand’s disaster resilience and the effects this earthquake will have on our tourism industry.

EQC reinsurance enough to foot recent repair bill

Given our current understanding of the damage thus far, we estimate that the repair bill will be in the ballpark of $2bn.  Even though its cash reserves are running low1, EQC currently has access to $4.89bn in reinsurance to cover earthquake related damages.  If it happens that the cost of repair work hits above the reinsurance threshold, EQC liabilities are backed by the government.

The government surplus stood at $1.8bn in the year to June 2016, and strong economic conditions will favour a higher tax take over the next few years, putting more cash in reserve.

Most of the repair bill will be infrastructure work, with the large number of slips along the Kaikoura coastline.  For reference, the 2011 Manawatu gorge slip took more than $20m and a year to fix.  However, the landslides around the Kaikoura area are much larger by comparison, and the sheer number of slips already implies that the road repair costs could rack up quickly.  The extent of this damage could even prompt the New Zealand transport authority to re-route State Highway 1 further inland.

A special report on the extent of the damage, timelines for repair work, and the construction sector’s ability keep up, as well as the wider implications for population movements around the country, will be released as part of our Regional Hotspots report next week.

Tourists to avoid the Upper South this season

Given the damage to roads and fears of earthquakes, we expect that tourists will avoid the northeast corner of the South Island this summer.  An estimated 2.2m tourists are expected to visit New Zealand between October 2016 and March 2017.  Although the earthquakes may put some tourists off from coming to New Zealand, with many having already booked their holidays in advance, we expect that most will change their travel plans slightly and turn their sights on the lower South, or stick to the North Island this summer.

Tourism makes up 12% of Kaikoura’s $153m economy (as at June 2016, according to Infometrics’ estimates).  Despite the relative strength of the New Zealand economy on the whole, most economic indicators for Kaikoura were already weak in the September quarter.  Guest night numbers were one of the few positive notes for Kaikoura, up 4.4% over the year to September 2016, underlining that these recent earthquakes have hit the area where it hurts most.

The effect of the earthquakes on local tourism businesses is not just limited to Kaikoura, with the damage to State Highway 1 north of Kaikoura effectively blocking north-south connectivity for most parts of the upper east coast of the South Island.  As a result, we also anticipate a lower tourist intake for the larger regional economies of Marlborough and Hurunui.

Marlborough’s economy was worth $2.2bn in the June 2016 year, with about 4.3% attributed to tourism, and the economy in Hurunui was worth $645m (7.9% tourism) over the same period.  September GDP data is out in Infometrics’ Quarterly Economic Monitors on Thursday November 24.

A round-up of this week’s data

There were a few data releases due out this week that have been delayed: the retail trade survey, the capital goods price index, and the producers price index.  Statistics NZ plans to have a revised calendar for these delayed news releases out this week.

We anticipate delays to next week’s data as well.  This data includes international migration, tourism, and overseas merchandise trade statistics for October.

[1] EQC finished the year with $549m cash in the bank, it also has a net liabilities bill of $459m.




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