World Crisis Online

By James Paton

(Updates with Key’s comments in sixth to eighth paragraphs.)

March 7 (Bloomberg) — New Zealand’s government said it may need to borrow more money and reconsider spending plans after the country’s deadliest earthquake in 80 years caused as much as NZ$15 billion ($11.1 billion) in damage.

Costs from the Feb. 22 quake that wrecked the central business district of Christchurch may triple the estimated NZ$5 billion bill from a temblor that hit New Zealand’s second- largest city in September, the Treasury Department said. The expense will be shared between the government, insurers and businesses, Finance Minister Bill English said yesterday.

“Paying for the earthquake will likely involve a balanced combination of a bit more borrowing in the short term and reconsidering our spending priorities,” English said in a statement on his website.

New Zealand’s economic growth this year is expected to be 1.5 percentage points lower because of the disaster in Christchurch, the Treasury Department said. A “small contraction” in real gross domestic product is predicted in the March quarter, compared with a 0.5 percent growth forecast before the quake, it said.

A recovery starting in 2012 will “bring a sizable boost” to investment, the department said.

Prime Minister John Key, in an interview with Television New Zealand, today reiterated that a cut in the nation’s official cash rate would “probably help” as the economy slows.

RBNZ Meeting

The central bank is scheduled to review the benchmark lending rate on March 10. Ten of 14 economists surveyed by Bloomberg News predict Reserve Bank of New Zealand Governor Alan Bollard will reduce the cash rate by at least 25 basis points from 3 percent.

“It’s for him to decide and him alone to decide what happens on Thursday,” Key said. “But certainly the markets have factored in a likely cut in the official cash rate, and you’ve got to say lower interest rates probably help the country, but that ultimately is a matter for the governor.”

The number of deaths from the 6.3-magnitude quake rose to 166, the Civil Defense department said on its website yesterday. Crews finished searching the rubble of the toppled Christchurch cathedral and didn’t find any victims, the statement said.

Further aftershocks of magnitude 5 or more are possible in the next few days after a 4.8-magnitude shock reported yesterday by the U.S. Geological Survey, the civil defense department said on its website. Residents and businesses were allowed access to some areas of Christchurch opened to the public yesterday, it said.

Death Toll

Police at the weekend identified 21 more people killed, including a 24-year-old South Korean national. As many as 100 foreigners may have died in the quake, according to the New Zealand government.

“The outlook for the New Zealand economy was weaker even before the earthquake, as domestic demand was soft despite income gains from high commodity prices,” the Treasury said.

The impact of the February quake, “combined with already slower economic growth than forecast,” may leave nominal gross domestic product NZ$15 billion lower through 2015, English said.

The total loss of tax revenue may be as much as NZ$5 billion over a five-year period, he said.

“This is manageable in the context of the government’s revenue base of about NZ$330 billion over the five years,” English said in his statement. “It’s clear that the earthquake will have an impact on the government’s finances — through both increased costs and reduced tax revenue.”

–With assistance from Daniel Petrie in Sydney. Editors: Paul Tighe, Brendan Murray