New Zealand economy faces hit from major earthquake as it struggles out of recession

CHRISTCHURCH, New Zealand - New Zealand's prime minister warned Monday that the country's economic recovery will be hurt by the weekend's powerful 7.1-magnitude earthquake that smashed buildings and wrecked roads and rail lines in the city of Christchurch.

"There will be considerable disruption to the (regional) and national economy in the short term," but activity should pick up as reconstruction gains momentum, Prime Minister John Key said. The country's economy has now recorded two quarters of minor growth after struggling to escape 18 months of recession.

Key spoke after army troops took control of central Christchurch, to help police secure streets and badly damaged businesses in the worst-hit centre of the city. The area remained cordoned off and under nighttime curfew, with only building and business owners allowed access.

The quake struck at 4:35 a.m. Saturday near the South Island city of 400,000 people, ripping open a new fault line in the earth's surface, destroying hundreds of buildings and cutting power to the region. No one was killed, and only two serious injuries were reported.

Key, who toured the city's damaged areas over the weekend, said 430 houses and another 70 buildings, many of them older structures, were already earmarked for demolition because of damage caused by the quake. Around 100,000 of the region's 160,000 homes had sustained some damage, he said.

"I was awe-struck by the power of the earthquake and the damage it has caused in the city," he told reporters. "It was miraculous that nobody was killed."

A quake-damaged building partially collapsed into a suburban street Monday and officials took urgent steps to bulldoze and remove it. There were no injuries reported.

"Police had a unit going past just as it happened and they managed to stop and block (off) the road," Inspector John Price said.

Key said the earthquake would have a short-term negative impact on economic growth, but that loss "would be more than made up by the stimulus impact that takes place with the rebuilding program."

The government plans to pay at least 90 per cent of the hundreds of millions of dollars needed to rebuild the city's water, waste water and road infrastructure, Key said.

Economists agreed the immediate economic outlook for quake-ravaged Christchurch is bleak, but noted reconstruction would provide a boost to a struggling construction sector next year.

"I think people are going to be pretty conservative over the next three months. What we are seeing is ... negative growth in the near term," ANZ Bank chief economist Cameron Bagrie said.

ASB Bank chief economist Nick Tuffley said overseas experience suggests New Zealand's national GDP growth will be weak in the third quarter of 2010 because of the quake.

"However, reconstruction activity will subsequently boost GDP, potentially by 1.5 percentage points," he said.

More than 80 aftershocks, ranging from magnitude 3.2 to 5.4, have rocked the region since the major quake Saturday.

Quake experts say aftershocks of diminishing size and frequency likely will continue to rattle the area for several weeks, though the worst of them should be over by Tuesday.

"People are getting regular reminders of Saturday morning with aftershocks of a considerable size," said senior Cabinet minister Gerry Brownlee, a Christchurch-based lawmaker, appointed to head the region's recovery program.

Rain was falling Monday in the nearby Southern Alps and foothills, increasing the risk of flooding. Civil defence officials warned that stop banks, or flood protectors, weakened by the quake may fail to hold rising waters. Engineers were inspecting the banks Monday.

Around 150 people have been evacuated from a trailer park near the Waimakariri River as a precaution.

High winds overnight downed trees and power lines, knocking out power and blocking roads, but officials said it was not as severe as feared and no new serious damage had affected quake-hit buildings. Panes of glass were seen falling from damaged buildings and falling debris remained a concern, said city police chief, Superintendent Dave Cliff.

West of the city, where the quake epicenter was located, Agriculture Minister David Carter inspected ruined farm homesteads, damaged milking sheds and toppled grain silos. He warned that farmers faced damage to irrigation infrastructure.

"I guess it's hard to assess the extent of damage at this stage," Carter said. "We drove past one house that looked absolutely unscathed ... I was informed that it has been absolutely condemned."

New Zealand sits above an area where two tectonic plates collide. The country records more than 14,000 earthquakes a year — but only about 150 are felt by residents. Fewer than 10 a year do any damage.

New Zealand's last major earthquake registered magnitude 7.8 and hit South Island's Fiordland region on July 16, 2009, moving the southern tip of the country 12 inches (30 centimetres) closer to Australia.

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Associated Press Writer Ray Lilley in Wellington contributed to this report.