* It will take some time to get a clear picture of the economic impact from the earthquake: it is still very early and the scale of the damage is large yet uncertain.

* The Canterbury economy will face a period of short-term disruption until the vast majority of businesses can resume more normal operations. Overseas experiences suggest national GDP growth could be weak in Q3, instead of robust in the led-up to GST.

* However, reconstruction activity will subsequently boost GDP, potentially by 1.5 percentage points. Some of this activity will cause pockets of inflation, but we expect the RBNZ will look through these impacts and if anything keep interest rate support in place for longer.

Saturday's Canterbury earthquake has hugely affected thousands of people. Many of us around the country have family and friends in Canterbury and are counting our blessings that the human toll has been so light.

As economists, we are also thinking about - and being asked - what the earthquake may mean for the economy and financial markets. It will take some time to get a clear picture of the economic impact: it is still very early after the earthquake, and the scale of the damage is large yet uncertain. We have written an Economic Note outlining key influences on both the short-term disruption and the longer-term boost from reconstruction.

The Canterbury economy will face a period of short-term disruption until the vast majority of businesses can resume more normal operations. Overseas experiences suggest national GDP growth could be weak in Q3, instead of robust in the led-up to GST. However, reconstruction activity will subsequently boost GDP, potentially by 1.5 percentage points.

Some of this activity will cause pockets of inflation, but we expect the RBNZ will look through these impacts and if anything keep interest rate support in place for longer. Increasingly the RBNZ is unlikely to lift interest rates until early next year.

The earthquake's destruction is a large wealth hit, with early estimates of $2 billion. However, much of the wealth shock will be borne by the Earthquake Commission, insurance companies and the public sector. Consequently, the long-term spending plans of private individuals and firms are unlikely to be materially impacted by adverse wealth effects.

So far the NZ market reaction on Monday morning has been modest and reasonable. The NZD edged down around 20 points to USD0.7190 from its US close, but has since lifted back above 0.72. Short-term swap rates declined around 5bp in anticipation of the RBNZ being on hold for longer. In contrast, long-term government bond yields rose around 10bp, in part following US yields higher but also with an eye on the Earthquake Commission's and Government's potential to increase the supply of traded bonds. Equities have generally been flat with the exception of those stocks likely to be noticeably affected (positively or negatively).