Electrical crews working to repair broken or damaged lines at Taradale Road switching yard. Photo: RNZ / Lauren Crimp
The recovery from Cyclone Gabrielle is expected to boost economic activity and put more pressure on the already-squeezed construction sector.
However, the latest data from economics consultancy Infometrics showed economic activity remained solid ahead of the cyclone.
The consultancy's quarterly economic monitor showed a 2.8 percent rise in annual provisional economic activity over the 12 months to December 2022.
Principal economist Brad Olsen said post-Covid recovery in the tourism sector boosted economic activity across much of the South Island last year.
"The late stages of 2022 saw some signs of the collective economy trying to 'cool the jets', as inflation remained stubbornly high and the Reserve Bank signalled an engineered recession to realign economic demand and supply," Olsen said.
Principal economist Brad Olsen Photo: Infometrics
"We think that underlying economic activity was broadly flat to declining at the end of 2022, partially because of how strong the September 2022 quarter was."
Olsen said heading into 2023 he expected economic demand to pull back but after Cyclone Gabrielle battered the North Island, that was no longer the case.
"The cyclone has disrupted a lot of expectations for the year ahead," he said.
"We're expecting now that there will be lower economic activity in the short term, purely because there isn't as much spending and economic activity able to happen across the likes of Hawke's Bay and Tai Rāwhiti, given they are still in response mode to the cyclone."
Olsen said in the long term, the sheer amount of rebuilding and recovery needed would create capacity constraints.
"Who is going to do all of this recovery work?
"What materials are we going to be able to bring to bear?
"It's likely given those constraints that we are going to have to be very serious about reprioritisation of our building sector across the country, to make sure we're able to get the right people and resources into the places that need help the most."
Auckland experienced flooding right before Cyclone Gabrielle hit. Photo: RNZ/Mohammad Alafeshat
Cyclone Gabrielle could make this year's expected recession more shallow, as economic activity would increase during the rebuild, but the Reserve Bank still had more work to do to combat inflation, Olsen said.
"Looking ahead, we expect that the floods in Auckland and the massive disruption from Cyclone Gabrielle will dampen economic activity at the start of 2023, before providing an artificial boost to growth as the recovery swings into action," he said.
"We anticipate a considerable period of disruption for parts of the North Island, given the devastating effects of Cyclone Gabrielle.
"With several affected areas being major centres of food products, the destruction of crops, farms, and primary production equipment will hamper output.
"More limited communications, and disrupted transport infrastructure, will also limit economic activity in the short-term."
In the immediate term, accommodation needs would increase, with displaced residents needing to be housed alongside those coming into the regions to help with recovery efforts, Olsen said.
"For businesses, cashflow will be under pressure given mounting costs to get back into operation, but limited revenues given the destruction of producing assets," he said
"Resourcing the recovery from Cyclone Gabrielle will be difficult given the constraints already clear across the economy.
"Workers and materials will need to be diverted from other areas and other tasks to enable the recovery."
Significant capital investment would be required to rebuild transport networks and re-establish primary sector operations, Olsen said.