December 18th, 2024
The New Zealand Treasury has published preliminary estimates revealing the extensive and lasting economic impacts of the North Island weather events (NIWE) that occurred earlier in 2023. Severe weather in late January and Cyclone Gabrielle in February led to significant damage and disruption to buildings, businesses, and infrastructure across multiple regions, affecting various sectors of the economy.
Why it matters: The NIWE has left a lasting mark on the country's economy, with estimated total damages ranging between $9 billion and $14.5 billion. The government's response has been focused on immediate support, but the transition towards recovery and rebuilding will be crucial in the coming years.
Output losses hit primary industries hardest: Agriculture and horticulture suffered the most significant output losses, with estimates suggesting a reduction of $400 million to $600 million in the first half of 2023. Persistent losses averaging around $100 million per annum are expected in the following years due to the loss of capital assets, such as orchards.
Short-term inflation spike: Flood-reduced supply is expected to cause inflation to rise by approximately 0.4 percentage points in the March and June quarters, primarily affecting the availability of goods and services, including fresh produce.
Damage to physical assets: Over half of the overall damage relates to public infrastructure, with transport and water infrastructure experiencing significant losses. Households and businesses, especially those in the primary sector, have also faced considerable damage.
Government response: The government has provided support to affected communities and businesses, including $149 million for primary sector and non-primary sector businesses, a $250 million top-up to the National Land Transport Fund, temporary accommodation assistance, and an $11.5 million package for NGOs and community groups.
The big picture: The NIWE's impact on the economy has been profound, with long-term effects expected to persist for years. The government's focus is now shifting from immediate response to recovery and rebuilding, which will play a vital role in restoring the country's economic health.
What's next: Further announcements on government support for the affected regions are expected as they transition from an immediate response to a recovery and rebuild footing. New Zealand's Budget forecasts, set to be released on 18 May, will contain a significant amount of cyclone-recovery investment.