Flood expected to lower growth and feed inflation, but too soon to talk numbers

Monday, 30 January 2023

David Meagher, owner of Sal Rose Italian Restaurant assesses flood damage.

Auckland’s floods will lower economic growth and have an upward impact on inflation, BNZ research Stephen Toplis says.

But Toplis said that while the natural disaster would undoubtedly have a macroeconomic impact, it wouldn’t be comparable to the Christchurch earthquake.

It would not be sensible at this stage to talk about numbers, he said.

The cost of replacing infrastructure and housing was clearly going to be in the “hundreds of millions”, he said.

* Economic impact of Auckland floods will be 'many millions', business leaders say

While the main impact of the flooding was the human cost, it would shift the macroeconomic needles to some degree, BNZ economist Stephen Toplis forecast.

“But is it $400m or $1.5b? We just don’t know.”

After the human impact of the floods, the biggest impact would come from the fact it had stopped people going about their daily lives, Toplis said.

“Particularly in an environment where people were loath to get out and about anyway, that is really unhelpful.”

Although the building boom appears to be drawing to a close, Toplis said there were still big capacity constraints in the construction industry in Auckland.

“This is where you really feel sorry for the people that are going to have to do fix-it jobs, because who are they going to find and what are they going to charge them?

“If you've lost that many houses, where do those people go?”

Kiwibank forecast in a research note on Monday that acute labour shortages in the construction and related industries meant the clean-up and repair of homes and infrastructure would take “many months”.

Toplis said another unknown was the extent to which any hit to economic growth might be caught-up on down the track.

One of the surprises of the Covid lockdowns was the strength of the bounce back in consumer spending once those lockdowns ended.

Financial markets were calm on Auckland anniversary day, despite the weather turmoil.

The NZX top 50 opened lower but was trading unchanged on its Friday close by late morning.

The New Zealand dollar was also little changed after an initial dip. The bond market was similarly quiet with the yield on two-year government bonds dipping 1 basis point to 4.447%.

But Toplis cautioned the flooding could have longer term implications for the economy.

“It's yet another event that has us questioning where we can and can't build.

“In and of itself, it's not going to be the straw that breaks the camel's back, but we are repeatedly being reminded now that flooding is a very real risk,” he said.

“That is going to change our perceptions of the value of the housing stock in areas that were never thought of as being flood prone, and it changes our perceptions about what infrastructure we need.”