The New Zealand earthquake will cost the country up to NZ$15bn (€7.9bn) and knock gross domestic product growth down by 1.5%, the Treasury department said.
But it predicted an economic boost next year when rebuilding is under way following the 6.3 magnitude earthquake on 22 February, which devastated the main South Island city of Christchurch.
The department said the earthquake had a large cost in economic and human terms - with a death toll at 166 and expected to pass 200 - and emphasised its estimates were early and tentative.
'We estimate that GDP growth will be around 1.5% lower in the 2011 calendar year solely as a result of the February earthquake,' the Treasury said in its monthly report.
The Treasury had previously forecast that GDP would rise 3.0% in 2011.
'From 2012, the recovery will bring a sizeable boost to residential, commercial and infrastructure investment, placing upward pressure on prices depending on the rate of rebuilding,' the Treasury said.
'The outlook for the New Zealand economy was weaker even before the earthquake as domestic demand was soft despite income gains from high commodity prices,' it said.
The Treasury said the cost of the quake was likely to be two to three times greater than the cost put on the 7.0 earthquake that hit Christchurch last September.
Finance Minister Bill English said the preliminary assessment confirmed the need for the government to carefully consider its priorities.
He said paying for the earthquake was likely to involve 'a bit more borrowing in the short term' and changing spending priorities.
