A new report outlining Wellington's economic forecast expects the city's economy will return to its pre-Covid-19 size by 2022.
But is has also warned the capital's public sector is both a strength and vulnerability.
The city council has commissioned Infometrics for the economic advice as it undergoes a review of its Long Term Plan this year.
The forecasts are based on the assumption there will be no further nationwide Covid-19 lockdowns, that a transtasman bubble is implemented in the second quarter of 2021, and that the country's border is fully reopened in 2022.
Economic activity in Wellington is forecast to decline in the March 2021 year by 3.1 per cent, which is better than the national decline of 4.1 per cent.
Wellington's large public sector will insulate the local economy from the impacts of Covid-19, the report said.
Infometrics has forecast the city's GDP will bounce back in 2022, tread water in 2023, and sit comfortably at about 2 per cent annual growth for the remainder of the decade.
But the loss of international visitors has harmed the city's tourism sector, especially hospitality businesses.
Furthermore, widespread uptake of working from home arrangements has led to falling consumer spending in the city.
"Increasing use of working from home arrangements long term may cause something of a structural change in the city's retail and hospitality industries", the report said.
WellingtonNZ Chief Executive John Allen told the Herald he has always considered the city's economy as resilient.
"It's not as exposed to international tourism as some parts of the country, we are the centre of Government, we've got a strong professional services base, and we've got a growing technology base. All those features create growth potential for the region and that's reflected in these forecasts."
WellingtonNZ chief executive John Allen. Photo / Supplied
He said the city was diversifying through the likes of technology, digital, software, screen, and gaming spaces.
Allen said WellingtonNZ was trying to support other sectors that were hurting like hospitality, accommodation, and retail through the likes of local campaigns, festivals, and events promotion.
"All those sorts of things are attempts to mitigate that impact, but to be blunt it's still really tough in those sectors."
Wellington Mayor Andy Foster said the city's projected economic activity was good news, but was mindful that was subject to no further lockdowns.
Meanwhile, Infometrics has forecast population growth in Wellington City will ease, but remain positive, over 2021 to 2023.
That's due to the adverse affects Covid-19 will have on net migration.
But growth is forecast to gradually rise over the remainder of the decade, reaching 1.1 per cent per annum by 2030.
"This growth is underpinned by strong forecast growth in employment in the city, and an ageing population which require replacement workers as they retire from the workforce", the report said.
Wellington Mayor Andy Foster. Photo / Mark Mitchell
Wellington City's population is forecast to grow from 216,200 in 2020 to 242,400 in 2030. This increase amounts to an additional 26,200 people in a ten-year period.
Foster said while population growth might be a little bit slower than forecast prior to the Covid-19 outbreak, it was important to push ahead with the Spatial Plan and District Plan review processes.
"Obviously house prices are going through the roof at the moment. Part of that is simply demand going up and supply not meeting that. So I think we will still have those challenges, we still are going to need to provide more housing. I just want us to get really active in doing that."
Reliance on the public sector
Wellington is the home of the public sector and represents a large base of relatively stable employment.
An increased level of public service activity has benefited the city, driving an increase in total employment of 1.3 per cent over the year to October 2020, the Infometrics report said.
But the Government is considering a proposal to "reduce the footprint" of state employees based in Wellington and Auckland by establishing agencies in the regions.
Greater Wellington Regional Council chairman Daran Ponter. Photo / Mark Mitchell
The report warns this presents a risk of weak growth or even a decline in public sector employment in Wellington City.
"The effect on Wellington City will depend on the extent to which the government follows through with their strategy, and whether jobs are moved to other centres in the Wellington Region or spread further afield", it said.
Greater Wellington Regional Council chairman Daran Ponter said Wellington City was the biggest economic engine room in the region.
"If Wellington sneezes everyone else gets a cold."
Ponter said his preference was for any regional hubs to stay within the Wellington region.
"The challenge for the Wellington City area is to re-invent itself and make it attractive to other industries so we're not as reliant on the public service as we possibly have been in the past. We've seen that in the development of the creative sector in the last 30 years."
