How regional economies are still beating Auckland, despite forestry slump

The forestry industry is currently enduring a tough patch. Photo / File.

New Zealand's regions continue to outperform the big cities as the economy slows, according to two economic reports.

But some of the provincial regions that had been booming are a now also starting to slow, according to both KiwiBank's Regional Heat Map and Westpac's Regional Roundup.

"We think that economic conditions are going to get worse before they get better, especially for regions with big exposures to tourism, dairy, forestry and manufacturing," said Westpac chief economist Dominick Stephens.

The sharp fall in log prices was starting to hit employment in regions like Northland and the East Coast, Westpac said.

And sentiment in key dairy regions such as the Waikato, Taranaki, Manawatu and Southland was fragile amid ongoing concerns about the impact of government
policy.

International tourism had also started to slow, particularly affecting the South Island's economy.

No region will be completely immune to the general economic slowdown, Stephens said.

Auckland and Canterbury, which make up half the country, were the most downbeat as their housing markets, and Canterbury's construction sector went into reverse.

Meanwhile, Wellington had boomed in part due to the change of Government, he said.

"Economic activity in Wellington is expected to remain upbeat, in large part because of spending by the Government."

Kiwibank's regional analysis also showed the regions running hotter than Auckland.

The hot spots on the KiwiBank regional heat map were Southland, Wellington, Whanganui/Manawatu and Gisborne.

Regions

Fortunately, not all regions are experiencing tough times, KiwiBank senior economist Jeremy Couchman said.

Some of our smaller regions, such as Gisborne, Whanganui/Manawatū and Southland had maintained or even seen a rise in their regional score - which were already decent, he said.

"Housing markets in these regions have surged as they catch up to the larger centres, and investors hunt for decent rental yield."

"Construction activity has responded and people in these regions seem generally happy to open their wallets and spend."

Looking further ahead, the outlook for GDP growth over the next year or so was more positive, Westpac said.

"We expect that ultra-low interest rates are going to cause asset prices to rise, including houses – nationwide house price inflation is forecast to accelerate from 2 per cent now to 7 per cent next year," Stephens said. "The turnaround will be felt most acutely in Auckland and Canterbury, where we expect house price inflation to switch from negative to positive."

Meanwhile, a long-awaited lift in government spending was starting to kick-in via transfers to households, higher pay for many state employees, and the provision of additional services.

"This fiscal stimulus, combined with a stronger housing market, is expected to give consumer spending a shot in the arm," Stephens said.

Housing is expected to rebound and boost growth and consumer spending. NZ Herald photo by Ted Baghurst.

Westpac's regional wrap:

Northland

Economic activity in Northland looks to be slowing despite meat and horticultural prices having held up well recently.

Sharply lower log prices are likely to be among the reasons
why confidence among Northlanders has dropped markedly.

Auckland

Economic activity in Auckland seems to be slowing.

Confidence at best remains fragile, fuel prices are elevated, passenger car and commercial vehicle registrations are weakening, and the housing market continues to languish.

Construction activity is booming with building consents surpassing the previous peak seen in the 1970s.

Economic activity in Auckland is likely to get worse before it gets better and this may lead to a rise in unemployment.

Waikato

Activity in Waikato is cooling after a sustained period of gains.

Ongoing uncertainties about how government policy might impact dairying have increased anxiety levels among farmers in this major dairy producing region, while the sharp fall in forestry log prices in June will have affected harvesting activity

Bay of Plenty

Although bolstered by increased kiwifruit exports to China and Japan and higher prices for meat, the region has been adversely affected by sharply lower log prices.

Tourism to the region also looks to have softened with annualised international guest nights continuing to track lower compared to a year ago.

Still, the region's economy has still performed well over the past year, driving demand for
commercial space and a surge in property development.

Wellington

The Wellington labour market, which continues to power ahead with job vacancies still going strong.

In part, this reflects a ramp up in Government spending on public services, and a consequential increase in hiring.

Economic activity in Wellington is expected to remain upbeat, in large part because of spending by the Government.

Canterbury

Economic conditions remain fragile as the local economy continues to move away from i from quake reconstruction led growth.

Manufacturing production in the region has been sluggish for some time with latest estimates suggesting a contraction
in July.

The same applies for services, where arguably the slowdown has been even more marked, in part because of weaker tourism numbers. Both sectors are now staring down
the barrel of a slowing global economy.

Southland

Economic activity in Southland is flattening off. In large part this reflects a decline in manufacturing activity and a mixed performance from the region's services sector.

Ongoing uncertainties about how government policy might affect dairying are unlikely to have helped matters, although the meat sector is doing well.