Economic confidence took a dive in all parts of the country in the last quarter of 2022 but Waikato saw the largest fall and Auckland took the lead as the gloomiest region.
The Westpac McDermott Miller Regional Economic Confidence survey found ongoing rises in interest rates and the cost of living, as well as falling house prices, have weighed on confidence across the regions.
“In fact, households’ confidence in their regional economies is now in negative territory in every region,” said Westpac acting chief economist Michael Gordon.
Waikato posted the largest fall with record-low farmer confidence likely having spilled over into weak household confidence, Gordon said.
Northland and Auckland remained the most negative regions in the country as rising interest rates and cost-of-living increases bit hardest.
“From here, we expect that confidence will remain under pressure as rising interest rates and costs of living plus falling house prices combine to put the squeeze on households,” he said.
“Meanwhile, regions that are benefitting from the return of tourists and agriculture-focused regions may fare better than others,” he said.
The Nelson/Marlborough/West Coast Household region posted the largest nationwide lift over the quarter.
Auckland
Auckland is now the most negative region in the country, likely driven by pressure on the housing market with prices falling and interest rates rising.
“Cost-of-living and interest rate increases and are hitting Aucklanders’ wallets hard,” said Westpac senior economist Nathan Penny.
“And, if anything, the squeeze on household budgets is about to accelerate as more homeowners and investors roll on to higher fixed mortgage rates over coming months. The Auckland housing market is also at the forefront of the nationwide house price declines, dropping 20 per cent since November 2021. As a result, Aucklanders’ view of their local economy may get worse before it gets better.”
Northland
Northlanders remained very pessimistic about the outlook.
No doubt, cost-of-living and interest rate increases were being felt acutely but the outlook for the region’s key industries was at best mixed, Penny said.
“Sheep and beef industry returns have peaked and are on the way down, while forestry returns remain weak. Also, confidence in the horticulture sector is likely to have dipped on the back of low and falling returns for avocado and kiwifruit growers, respectively.”
The one bright spot was tourism with the rebound of international visitors under way.
“We expect the tourism pickup to continue into the March quarter and through 2023 and 2024 and this may spill over into confidence in the region. That said, the financial squeeze on household budgets is likely to remain the dominant theme over the year.”
Waikato
Waikato’s confidence reading plunged 39 points over the quarter, taking the region back to the middle of the pack.
Measures of farmer confidence were also at record lows during the quarter, and this may have spilled over into lower household confidence, said Penny.
“In general, farmer uncertainty about the future of the industry remains high as sector regulations continue to tighten. At the same time and like the rest of the country, rising interest rates, cost of living increases and the cooling housing market will have added to the downward pressure on households’ view of their regional economy.”
Bay of Plenty
Falling kiwifruit returns and poor weather early in the growing season may have dampened the mood.
Similarly, forestry sector returns remained soft. The local housing market, like the rest of the country, continues to weaken, with house prices falling by over 13 per cent since the November peak. Moreover, with interest rates and ongoing cost-of-living increases starting to bite on more household budgets, we expect pessimists to continue to outweigh optimists in the region over coming quarters, Penny said.
Taranaki/Manawatu-Whanganui
Household economic confidence declined 5 points to -21 over the quarter. Much like the rest of the country, the slide may reflect the ongoing rise in interest rates and the cost of living. Meanwhile, wet weather over spring may have also dragged down sentiment in the region’s agricultural sector.
“Looking forward, we expect the relatively high milk price and improving growing conditions may see a modest improvement in economic confidence. However, ongoing household sector weakness may temper any gains.”
Gisborne/Hawke’s Bay
The weather was challenging over the quarter; and, the January floods mean that there has been no let-up to start 2023. Meanwhile, house prices in the region have now fallen over 14 per cent since late 2021. “Looking ahead, we expect this weakness in sentiment to continue, particularly as rising interest rates and cost-of-living increases put the squeeze on more and more households across the region.”
Wellington
Wellingtonians’ confidence in their local economy plunged over the December quarter.
The region posted a 31-point drop in the survey, with sentiment falling to its lowest level since the early 1990s. One likely catalyst for the fall was the housing market. Wellington leads the country in terms of house price falls, with prices falling nearly 23 per cent since the peak in late 2021.
“From here, we expect economic confidence to remain under pressure as the ongoing rise in interest rates and the cost of living put the squeeze on household budgets.”
Nelson/Marlborough/West Coast
Household economic confidence in the region posted the largest nationwide lift over the quarter. Confidence was up seven points to -4.
“We put the lift down to the ongoing benefits of the bumper 2022 grape harvest,” Penny said.
The harvest was a record high, with Marlborough and Nelson recording 54 per cent and 39 per cent lifts on the previous year, respectively.
Looking ahead, the outlook is mixed. Returning overseas tourists should boost activity on the West Coast and in the Nelson region to a lesser degree. However, rising interest rates and cost of living increases may offset any household confidence gains from returning tourists.
Canterbury
Confidence dropped 20 points to -8. Measures of farmer confidence were also at record lows during the quarter, and this may have spilled over into lower household confidence.
“In general, farmer uncertainty about the future of the industry remains high as sector regulations continue to tighten,” Penny said. “At the same time and like the rest of the country, rising interest rates and cost-of-living increases will have added to the downward pressure on households’ view of their regional economy.
“Looking to 2023, we anticipate that the relative strength of Canterbury’s agriculture sector and the housing market will help keep Canterbury households’ view of their local economy higher than most other regions of the country.”
Otago
Otago’s economic prospects picked up a touch over the December quarter, rising four points. The influx of international tourists has been boosting activity in tourist hotspots like Queenstown and Wanaka.
“While worker shortages continue, the open border is allowing more migrant workers, including backpackers, to arrive into the region,” Penny said.
“On balance, we maintain a glass-half-full view of the region’s economy as we expect that the ongoing rebound in the region’s tourism industry will continue to dominate the economic landscape over 2023 and into 2024.”
Southland
Southland household economic confidence plunged over the December quarter. Confidence slid 27 points to -28.
Measures of farmer confidence were also at record lows during the quarter, and this may have spilled over into lower household confidence. In general, farmer uncertainty about the future of the industry remains high as sector regulations continue to tighten. At the same time and like the rest of the country, rising interest rates and cost of living increases will have added to the downward pressure on households’ view of their regional economy.
“Looking forward, we anticipate that the relative strength of Southland’s agriculture sector will mean that Southlanders confidence in their local economy may track higher than equivalents in other regions across the country.”
Jason Te Brake, Peter Newbold, Chris Russell, Jo Luxton, Mike Petersen.