At the start of 2011, life was very different in Christchurch. We’d been hit, but were well on the way to recovering from the September 4 and Boxing Day earthquakes. While things were looking tricky in Europe, we didn’t think we’d lose track of how many times Greece could get bailed out by the year’s end.
The economic effects of these two events were the topic of Dr Alan Bollard’s address to the Canterbury Employers’ Chamber of Commerce in Christchurch in late January.
While we live in shaky times (sometimes literally), his speech was tinged with optimism.
Euro in crisis
Trouble in Europe has been hitting the headlines as the continent struggles with serious debt.
“The European sovereign debt crisis owed much of it origin to the GFC but also to the imbalances that had built up in many economics, through large unsustainable fiscal deficits, persistent current account deficits and demographic and other public liabilities,” Bollard explains.
The European crisis is complicated, he says, and 2012 could be a difficult year.
“A disorderly Greek default with funding markets seizing up for other governments and banks would have a major negative effect on the euro zone and the rest of the world economy. In a worst-case scenario this could lead to the break-up of the European union,” Bollard says, although he doesn’t think this is very likely.
“We believe the euro-zone will stay in tact… looking ahead, the current economic recovery is very slow and fragile and there will be more problems ahead; it may take some years for Europe to get back on to the previous growth track.”
So what does this mean for us? Sadly, our geographical isolation is no protection from economic events abroad. If major world economies have a significant economic problem then that is going to affect us too, as New Zealand has seen in our export commodity prices, currency and funding our foreign debt.
“New Zealand’s increasing reliance on Asia as a trading partner reflects export market flexibility and has helped growth, but could not shield us from the slowdown in world demand or the drying up of financing even if it has meant a smaller drop in demand for our exports.
“Economies in the Asia-Pacific (including Australia) account for around 60 percent of New Zealand’s merchandise exports by value, a significantly larger share than exports to the euro area (at just seven percent).”
Put simply, a recession in Europe could spark a slowdown in Asia, pushing down commodity prices, and having a marked impact on Australia and New Zealand.
Seismic shocks
The February 22nd earthquake changed life as we know it and one year on its effects are still being felt.
After what has been for most of us one of the most difficult years of our lives, things are beginning to look up for Canterbury economically as the rebuild kicks in.
“Reconstruction is projected to eventually provide a boost to demand similar to the mid-2000s housing boom. Residential and non-residential investment will lift growth sharply,” Bollard says.
Christchurch was in a unique position when it comes to re-insurance. With 80 percent of Christchurch reinsured, capital is less of an issue than in other countries, Bollard says, something Canterbury Employers’ Chamber of Commerce CEO Peter Townsend expanded on.
He pointed out that when disaster hit in Haiti only one percent of buildings were insured and in Turkey that figure was four percent. In developed, but earthquake-prone Japan, the figure was 17 percent and in Chile 27 percent. In Christchurch, the figure was 80 percent.
All this means reconstruction money will be soon flowing in – and the economy will be boosted by the large reconstruction workforce that will require accommodation and services as the city rebuilds.
This is a positive statistics that means serious reconstruction money will be flooding in. Townsend says we must meet this challenge.
“It’s time to work towards creating an environment that will ensure capital gains in the city. It is time to recognise the inevitability of changing labour force dynamics and population volatility as we go into the future where we fully expect 30,000 FTEs [Full Time Equivalents – meaning jobs] above the usual to rebuild this city.
“It is time to come to terms with the delays associated with the continuous seismic activity and to work out what we can do; the big wheels of economic recovery are starting to turn. It is time to recognise that this city is moving in a new direction, we are not going back to what we were… As we recover we should be endeavouring to ride the great tailwinds of our time as a city.”
Bollard says the uncertainty of last year is somewhat over.
“In terms made famous by Donald Rumsfeld, we are moving from ‘unknown unknowns’ to ‘known unknowns’. We cannot expect to have complete clarity for 2012. Unexpected things will continue to happen and there will be more aftershocks, both financial and seismic; the effects of both shocks could continue to rumble on for some time.”
