WESTPAC REGIONAL ROUNDUP - 17 June 2022 - Auckland
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WESTPAC REGIONAL ROUNDUP 17 June 2022
Contents
Summary3
12 month regional outlook 4
Auckland5
Bay of Plenty 6
Canterbury7
Gisborne/Hawke’s Bay 8
Nelson/Marlborough/West Coast 9
Northland10
Otago11
Southland12
Taranaki/Manawatu-Whanganui13
Waikato14
Wellington15
Paul Clark, Industry Economist
+64 9 336 5656
paul.clark@westpac.co.nz
Westpac Regional Roundup 2Summary
Nationwide economic growth is set to soften in the year ahead, although impacts will differ by region. Rising
interest rates and falling house prices will weigh on consumer spending in all regions to varying degrees. But
with agricultural sector incomes set to remain firm, we are picking regions with a large rural backbone to
outperform all others. Meanwhile, regions with a large tourism sector are set to benefit from the recent lifting
of restrictions at the border and a resulting influx of tourists over the coming year.
The move to the traffic light system was good news for Ditto for Auckland, which is likely to feel the impact of a lack
economic activity, especially for those regions which had of interest-rate-sensitive investors in the market, and for
previously been subject to hard restrictions. Auckland, Wellington, which has benefitted significantly from sharply
having seen its economy put on ice, was the key beneficiary higher prices but now faces the prospect of a sharp correction.
as businesses across the region spluttered back into life. Others, such as the top of the South, should do a bit better
Neighbouring regions, Northland, and parts of the Waikato given the larger proportion of lifestyle properties and retirees
were similarly impacted, albeit to a much lesser degree. that live in the area.
For the rest of the country, which had been subject to fewer On a more positive note, homebuilding activity is expected to
restrictions, the move to the traffic light system had less remain firm for most regions over the coming year. Consents
of an impact. Indeed, if anything, the arrival of the highly are high, and most regions have a large amount of work
transmissible Omicron variant and a surge in infections still in the pipeline. Shortages of materials and increasing
made operating conditions a bit more challenging than they absenteeism will merely extend that out further into the
were before. future. That in turn should support regional manufacturing,
particularly in places like Auckland and Canterbury. Ditto
Regions with a large rural backbone, dominated by meat, dairy for regional labour markets, which will remain tight for the
and to a lesser extent horticulture, have typically outperformed foreseeable future.
those that do not. By contrast, regions with a large
manufacturing base have struggled. Homebuilding though has Lastly, all regions should benefit from more visitor arrivals from
been a key driver of activity in many regions. abroad following the reopening of the borders to foreigners.
Otago and to a lesser degree Auckland are set to benefit most
All regions have been affected by rising interest rates and an from a resulting pick up in tourist spending. That should help
accompanying slowdown in the housing market. That’s big the former close the performance gap on other regions.
news for Auckland and Wellington, which together with the
Manawatu have had the worst performing housing markets in Figure 1: House Prices – average 3 monthly change
the country over recent months. Other regions that previously
Wellington
had seen big house price increases off small volumes have Auckland
recently experienced sharp price corrections. That has put Canterbury
further pressure on household budgets, already squeezed by Northland
higher inflation. Gisborne/Hawke's Bay
Manawatu-Whanganui
Nelson/Marl/Tas/West Coast
Looking forward, we expect economic growth in New Zealand Bay of Plenty
will slow over the coming year. Waikato
3 mth ave - Feb 2022
Taranaki 3 mth ave - May 2022
Otago
On balance we think that regions that have a rural backbone Southland
and are set to benefit from still firm agricultural incomes, will
-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0
outperform those that are not. Not only that, but we think the
performance gap between these two groups will widen over the Source: REINZ, Westpac % change
coming year.
The big negative for growth going forward is likely to be the
housing market. As interest rates rise, all regions are expected
to see falling house prices over the coming year. That in turn
will put a squeeze on households’ willingness to spend.
The extent of the decline in house prices will partly be a
function of how much earlier price gains were driven off
thin volumes as well as the specific characteristics of each
region’s housing market. To that end, we think that regions
like Gisborne/Hawke’s Bay and the Manawatu, which has
outperformed all and sundry in recent years, face a possible
reckoning in the months ahead.
Westpac Regional Roundup 312 month regional outlook
These shaded maps provide a summary of current and future economic growth by region over the next year.
CURRENT SITUATION NEXT 12 MONTHS
STRONG STRONG
WEAK WEAK
Westpac Regional Roundup 4Auckland
Current situation. Returning tourists should also give the region a boost.
Auckland is a big tourism region, so the arrival of foreign
Auckland’s economic performance has been mixed. The lifting visitors will be warmly welcomed by retailers and hospitality
of lockdown restrictions following the outbreak of Delta providers alike.
provided a boost to activity earlier in the year, although that
was subsequently tempered by the spread of Omicron through Figure 1: Electronic card spending (latest: 5 June 2022)
the region.
Index 1000 = Feb 2020 Index 1000 = Feb 2020
1400 1400
That’s been most evident in weak household spending. Indeed,
electronic card spending in the region has remained well off 1200 1200
pre-pandemic levels during the first half of 2022. 1000 1000
800 800
Meanwhile, a sharp increase in the cost of living, rising interest
rates and a cooling housing market have dampened confidence 600 600
in the region. 400 400
200 200
Looking at the housing market, prices have fallen sharply over
Source: MBIE, Westpac
recent months as interest rates have increased. The strength 0 0
of the downward correction seen in Auckland makes this region 2020 2021 2022
among the worst performing in the country.
Figure 2: House prices and sales volumes
Construction activity though remains a bright spot. Building
consents, mostly related to the construction of medium density 5,000
Number Monthly % change
5
townhouses and flats, are showing no sign of faltering. That
4,000 Prices (RHS) Sales (LHS) 4
said, the region’s builders continue to face capacity constraints,
3,000 3
such as difficulties finding labour, rising levels of absenteeism
because of Covid and a shortage of building materials. 2,000 2
1,000 1
Meanwhile, operating conditions in the manufacturing sector 0 0
remain fragile, with manufacturers in the region facing -1,000 -1
difficulties accessing material inputs, shipping constraints -2,000 -2
and rising levels of absenteeism due to the spread of Omicron. -3,000 -3
Ditto for services activity, with the region’s hospitality sector in Source: REINZ, Westpac
-4,000 -4
particular struggling in the face of Covid hesitancy. 2017 2018 2019 2020 2021 2022
Figure 3: Residential building consents
Outlook.
Number Number
We expect growth in economic activity in Auckland to slow over 7,000 7,000
the coming year. 6,000 6,000
5,000 5,000
In large part the weak outlook is because we expect the
region’s slowing housing market to continue to act as a drag 4,000 4,000
on spending. Indeed, we expect Auckland’s housing market to
3,000 3,000
underperform the national average, largely because interest-
rate-sensitive investors make up a larger proportion of those 2,000 2,000
that purchase property than in other regions.
1,000 1,000
Source: Stats NZ
With interest rates rising, higher debt servicing requirements 0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
will also limit discretionary spending over the coming year.
Expected cost-of-living increases are likely to further dampen
spending in the region.
On a more positive note, the construction sector should
support economic activity in the region given current levels of
consent issuance and a large pipeline of work. Existing capacity
constraints are likely to mean some works being delayed, which
will extend this pipeline further out into the future.
Westpac Regional Roundup 5Bay of Plenty
Current situation. is likely to be a boon to tourist hotspots such as Rotorua, and to
a lesser extent Tauranga.
Economic activity in the Bay of Plenty reflects a mixed picture.
Meanwhile, activity in the region’s forestry sector is likely
On a positive note, the incomes of orchardists in the region will to track sideways. We expect log prices to remain modest,
have been boosted by a big kiwifruit harvest, which is expected although a pickup in the Chinese economy as Covid restrictions
to top 190 million trays. ease gradually should translate into higher log export prices
later in the year.
That said, many kiwifruit growers in the region have found
this season hard going, with picking and packing activity Figure 1: House prices and sales volumes
heavily affected by rising absenteeism due to the spread of
Number Monthly % change
Omicron and ongoing labour shortages. Shipping has also 700 7
been a challenge for the industry, not just in terms of cost but 600 6
also availability, while a slowdown in demand from China has 500 5
already begun to weigh on prices. 400 4
300 3
The region’s housing market has weakened in recent months. 200 2
Tauranga and Rotorua especially have seen house prices 100 1
weaken as interest rates have increased. Demand from 0 0
Auckland buyers has also tailed off, and that is reflected in -100 -1
slowing sales volumes. -200
Prices (RHS) Sales (LHS)
-2
Source: REINZ
-300 -3
This deterioration is likely to have adversely affected spending 2017 2018 2019 2020 2021 2022
in the region. That’s reflected in retail sales volumes, which
have largely moved sideways in recent quarters, while card
Figure 2: Electronic card spending – (latest: 5 June 2022)
spending is roughly back at pre-Covid levels.
Index 1000 = Feb 2020 Index 1000 = Feb 2020
1600 1600
The combination of weaker house prices and cost of living
increases will have contributed to a sharp drop in confidence in 1400 1400
the region. More households are pessimistic about the region’s 1200 1200
economic future. 1000 1000
800 800
Meanwhile, the region’s labour market remains tight. Job
vacancies have gone through the roof, while the unemployment 600 600
rate has moved sharply lower. 400 400
200 200
Source: MBIE, Westpac
0 0
Outlook. 2020 2021 2022
We expect economic growth in the Bay of Plenty to slow over
the coming year. Weighing on the region will be the housing Figure 3: Unemployment rate
market, with house prices set to contract further over the Percentage Percentage
coming year as interest rates bite. 10 10
9 9
8 8
But that is not the only factor that is likely to act as a drag on
7 7
spending in the region. With interest rates rising, higher debt
6 6
servicing requirements will weigh on discretionary spending
over the coming year. Expected cost-of-living increases are 5 5
likely to further dampen spending. 4 4
3 3
2 2
That said, spending could be supported by gains elsewhere in
1 1
the local economy. For example, kiwifruit growers in the region Source: Stats NZ, Westpac
should see their incomes rise over the coming year following 0 0
2009 2011 2013 2015 2017 2019 2021
this year’s bumper harvest.
Increased tourism should also support economic activity in this
region. The lifting of border restrictions on visitors from abroad
Westpac Regional Roundup 6Canterbury
Current situation. are also likely to benefit from less constrained processing
capacity, while dairy farmers should see a pickup in production
Canterbury’s diversified economy continues to outperform its volumes over the course of the next year.
metropolitan counterparts.
Construction is also likely to be a positive, with consents
On balance, the region’s dairy and meat farmers are doing well, issuance pointing to a healthy pipeline of work. A buoyant
with strong incomes reflecting the impact of still high prices. construction sector should boost demand for local
Many though will have found the going tough dealing with manufacturing, although exporting manufacturers will be
additional Omicron related challenges, such as sharply higher adversely affected by an expected global economic slowdown.
input costs and processing delays.
Increased tourism activity should also support the region’s
Residential building activity in the region has also been strong. economy, following the removal of border restrictions.
That said, builders have also found it tough going with having
to deal with disruptions caused by Omicron, such as shortages Figure 1: Residential building consents
of materials and increased absenteeism. Building inspection
delays due to capacity constraints at council are also a key Number Number
3,000 3,000
concern for many builders looking to complete projects.
2,500 2,500
Meanwhile, the region’s housing market has begun to slow.
2,000 2,000
However, the slowdown has been measured, reflecting relative
valuations and the fact that the recent upswing in house prices 1,500 1,500
came later than in other regions.
1,000 1,000
Manufacturing activity in the region has tracked lower and is
500 500
now contracting. That is likely to reflect the disruptions caused
by Omicron with many manufacturers continuing to struggle 0
Source: Stats NZ
0
with ongoing supply constraints, skilled labour shortages, 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
and increased absenteeism. Export-focused manufacturers in
the region are also faced with high costs of shipping, carrying
capacity issues and a slowing global economy. Figure 2: House prices and sales volumes
Number Monthly % change
1,500 5
Meanwhile, labour market conditions have tightened with the
1,200 Prices (RHS) Sales (LHS) 4
unemployment rate recently trending lower and online job
ads increasing sharply. A strong labour market is likely to have 900 3
contributed to firm household spending. That’s been evidenced 600 2
by an increase in retail sales volumes. 300 1
0 0
-300 -1
Outlook. -600 -2
-900 -3
We expect that growth in economic activity in Canterbury will Source: REINZ, Westpac
slow over the coming year but should still outperform the other -1,200 -4
2017 2018 2019 2020 2021 2022
big metropolitan regions.
In large part that is because we expect the housing market will Figure 3: PMI/PSI
slow as interest rates rise, and that will be a drag on spending
Index Index
in the region. That said, housing in this region has been 70 70
undervalued for some time, so we expect the magnitude of the 65 65
drop in house prices to be relatively small. 60 60
55 55
But that is not the only factor that is likely to act as a drag 50 50
on spending. With interest rates rising, higher debt servicing 45 45
requirements will weigh on discretionary spending. Expected 40
PMI
40
cost-of-living increases are likely to further dampen spending. 35
PSI - Canterbury/Westland
35
30 30
Meanwhile, the prospects for agriculture in the region are good. 25 Source: Business New Zealand 25
Strong prices for sheep, beef and dairy should help to support 20 20
2017 2018 2019 2020 2021 2022
farmgate incomes in the region. The region’s meat producers
Westpac Regional Roundup 7Gisborne/Hawke’s Bay
Current situation. a smaller grape harvest is expected to adversely affect wine
exports from the region.
Activity in this high-flying region has slowed in recent months,
in part because of disruptions caused by flooding, which has On a more positive note, still strong prices for meat should
affected Gisborne and northern Hawke’s Bay. continue to support farmgate incomes in the region. The
region’s meat producers should also benefit from less
Among those affected were the region’s apple growers, already constrained processing capacity.
struggling with Covid related labour shortages. Heavy rainfall
in growing areas has delayed harvesting in the region by about Meanwhile, activity in the forestry sector is likely to track
two weeks and lowered crop expectations. sideways. We expect log prices to remain modest, although
a pickup in the Chinese economy as Covid restrictions ease is
Conditions for the region’s grape growers have not been ideal likely to translate into higher log export prices later in the year.
either and the harvest is slightly down on the previous year. To
a large extent that reflects the impact of heavy rains and labour Figure 1: House prices and sales volumes
shortages, which have brought harvesting forward.
Number Monthly % change
525 7
On balance, the region’s sheep and beef farmers are doing well, 450 Prices (RHS) Sales (LHS) 6
with strong incomes reflecting the impact of still high prices. 375 5
Many though will have found the going tough dealing with 300 4
additional Omicron related challenges, such as sharply higher 225 3
input costs and processing delays. 150 2
75 1
Other areas of weakness include the region’s housing market, 0 0
which had previously been an outperformer. House prices -75 -1
in the region have slowed dramatically in recent months as -150 -2
interest rates have kicked higher. Sales volumes are also well -225
Source: REINZ, Westpac
-3
off their highs and continue to track lower. 2017 2018 2019 2020 2021 2022
Building activity in the region though remains solid. That said,
Figure 2: Unemployment rate
builders have found it tough going dealing with delays caused
by a shortage of materials as well as increased absenteeism Percentage Percentage
10 10
due to Covid. Building consents have also tumbled from last
9 9
year’s highs, as the housing market has cooled, and interest
8 8
rates have pushed higher.
7 7
6 6
Labour market conditions remain tight. Demand for workers is
5 5
high, while unemployment has plummeted to record lows.
4 4
3 3
2 2
Outlook. 1
Source: Stats NZ, Westpac
1
0 0
We expect economic activity in Gisborne/Hawke’s Bay to ease 2009 2011 2013 2015 2017 2019 2021
up over the coming year.
In large part that is because we expect house prices in the Figure 3: Residential building consents
region will drop sharply as interest rates rise, and that will drag Number Number
on spending in the region. While the region’s housing market 450 450
has been an outperformer in recent years, this has been based 400 400
on relatively small volumes, which we think increases the 350 350
chance of a bigger correction over the coming year. 300 300
250 250
But that is not the only factor that is likely to act as a drag 200 200
on spending. With interest rates rising, higher debt servicing
150 150
requirements will weigh on discretionary spending. Expected
100 100
cost-of-living increases are likely to further dampen spending.
50 50
Source: Stats NZ
Activity in the region is also likely to be impacted by lower 0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
export volumes because of the smaller apple harvest. Similarly,
Westpac Regional Roundup 8Nelson/Marlborough/West Coast
Current situation. Meanwhile, Marlborough wineries are set to benefit from
a bigger grape harvest and increased exports. In contrast
Economic activity in this region has been resilient. In part that is to other growing regions, apple production has increased,
because of a good grape harvest following a disappointing yield which implies higher export proceeds and better returns to
in 2021. That should translate into an increase in wine production orchardists over the coming year.
and allow winemakers to fulfil growing export orders.
Increased tourism activity should also support spending in the
Orchardists are also doing okay. Apple production in the region region. The removal of border restrictions on visitor arrivals
is up mainly because of better growing conditions compared to from abroad should support retail and hospitality in Nelson and
last year, which was severely affected by hail. Growers though on the West Coast.
have had to overcome several challenges. While growing areas
are likely to have missed the worst of the severe rainfall events, Figure 1: House prices and sales volumes
orchardists have still had to grapple with worker shortages
exacerbated by the spread of Omicron. 150
Number Monthly % change
5
120 4
On balance, the region’s meat farmers are doing well, with
90 3
strong incomes reflecting the impact of high prices. However,
60 2
many have found this year tough going after disruptions caused
by severe weather events back in February. Many have also 30 1
struggled with Omicron related issues, such as sharply rising 0 0
input costs, labour shortages and processing delays. -30 -1
-60 Prices (RHS) Sales (LHS) -2
The region’s housing market though has begun to slow, as -90 -3
interest rates have kicked higher. Sales volumes have moved -120
Source: REINZ, Westpac
-4
sideways and are now at lower than pre-Covid levels. 2017 2018 2019 2020 2021 2022
Spending in the region remains fragile. Retail sales volumes
Figure 2: Electronic card spending (latest: 5 June 2022)
have at best been flat, with the most recent quarter showing a
drop. Similarly, card spending has remained below pre-Covid Index 1000 = Feb 2020 Index 1000 = Feb 2020
1400 1400
levels, presumably because more people have been forced to
self-isolate due to the spread of Omicron. 1200 1200
1000 1000
Outlook.
800 800
600 Marlborough 600
We expect growth in economic activity in this region to move Nelson
sideways over the coming year. 400 Tasman 400
West Coast
200 200
Weighing on the region will be the housing market, with Source: MBIE, Westpac
0 0
house prices set to contract further over the coming year 2020 2021 2022
as interest rates bite. However, the region’s housing market
should still outperform the national average, largely because
of the lifestyle nature of properties in this region and the high Figure 3: Unemployment rate
proportion of retirees that own property there.
Percentage Percentage
7 7
With interest rates rising, higher debt servicing requirements 6 6
will also weigh on discretionary spending over the coming
5 5
year. Expected cost-of-living increases are likely to further
dampen spending. 4 4
3 3
Balanced against this is ongoing strength in meat farming, and
an expected improvement in the performance of the region’s 2 2
viticulture and horticulture sectors.
1 1
Source: Stats NZ, Westpac
Still-strong meat prices are expected to support farmgate 0 0
2009 2012 2016 2019
incomes and spending in the region over the coming year.
The region’s meat producers should also benefit from less
constrained downstream processing capacity.
Westpac Regional Roundup 9Northland
Current situation. Balanced against this is weakness in the housing market. We
expect that house prices will fall over the coming year because
The ending of lockdown restrictions following the outbreak of higher interest rates.
of Delta has given the Northland economy a modest lift,
although that has been partially offset by the impact of the With interest rates rising, higher debt servicing requirements
Omicron outbreak. will weigh on discretionary spending. Expected cost-of-living
increases are likely to further dampen spending.
That has been evidenced by a small pickup in retail sales
volumes in the region. Ditto for electronic card spending, Meanwhile, activity in the region’s forestry sector is likely
which for a while now has been tracking slightly above to track sideways. We expect log prices to remain modest,
pre-Covid levels. although a pickup in the Chinese economy as Covid restrictions
ease should mean higher log export prices later in the year.
On balance, the region’s dairy and meat farmers are doing well,
with strong incomes reflecting the impact of still high prices. Figure 1: Electronic card spending (latest: 5 June 2022)
Many though will have found the going tough dealing with
additional Covid related challenges, such as sharply higher Index 1000 = Feb 2020 Index 1000 = Feb 2020
1600 1600
input costs and processing delays.
1400 1400
Construction activity has also been a bright spot. Consents 1200 1200
have stabilied at elevated levels, reflecting ongoing efforts to 1000 1000
address a shortage of housing in the region. That said, builders 800 800
have also found it tough going dealing with delays caused by
a shortage of materials as well as increased absenteeism due 600 600
to Covid. 400 400
200 200
The region’s housing market though has started to cool as 0
Source: MBIE, Westpac
0
interest rates have risen. Monthly price growth has now dipped 2020 2021 2022
into the red, while sales volumes have trended lower.
Figure 2: Residential building consents
The region’s labour market has been a standout. Job vacancies
are at elevated levels and the unemployment rate has trended Number Number
lower over time. That is also likely to have supported the 450 450
increase in retail spending referred to above. 400 400
350 350
300 300
Outlook. 250 250
200 200
On balance, we expect growth in economic activity in 150 150
Northland to improve over the coming year.
100 100
50 50
In large part that is because we expect a strong performance Source: Stats NZ
0 0
from meat and dairy farming. Still-strong meat and dairy prices 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
over the coming year will support farmgate incomes in the
region. The region’s meat producers are set to benefit from less
constrained processing capacity, while dairy farmers should Figure 3: House prices and sales volumes
also see a pickup in production volumes over the course of
Number Monthly % change
the year. 320 4
240 3
Construction activity should also be a positive for the region. 160 2
Consent issuance has been strong, suggesting a healthy 80 1
pipeline of work over the coming year. Issues with accessing
0 0
material and labour shortages though will remain a challenge
-80 -1
for many home builders in the region.
-160 -2
-240 Prices (RHS) Sales (LHS) -3
Although not a huge market for foreign visitor arrivals, the
lifting of restrictions on visitors from abroad should also -320
Source: REINZ, Westpac
-4
support the region’s economy. -400 -5
2017 2018 2019 2020 2021 2022
Westpac Regional Roundup 10Otago
Current situation. On balance, construction is also likely to be a positive for the
region over the coming year, with consents issuance and delays
Economic activity in Otago remains in the doldrums. in processing at council pointing to an extended pipeline of
work. Issues with accessing material and labour shortages
Weak tourism activity over the past six months reflects the though will remain a challenge for many home builders in
closure of the borders to international visitor arrivals and the the region.
lack of visitors from Auckland due first to the Delta lockdown
and then the Omicron outbreak. Balanced against this is weakness in the housing market. We
expect that house prices will fall further over the coming year
That in turn has adversely affected spending in the region. because of higher interest rates. That said, Otago’s housing
Retail sales volumes in the region are significantly down on market should still do better than that national average
previous quarters. Ditto for card spending, which remains well because of lower relative price gains over the past year or so.
off pre-Covid levels despite the shift to the traffic light system
which has made it easier for Aucklanders to visit the region. Figure 1: Electronic card spending (lasts: 5 June 2022)
Index 1000 = Feb 2020 Index 1000 = Feb 2020
Other industries though have offered some respite. The region’s 1200 1200
farmers will have been buoyed by strong meat prices. However,
many have found this year tough dealing with Omicron related 1000 1000
issues, such as sharply rising input costs, labour shortages
800 800
processing delays.
600 600
Construction activity has also been a bright spot, with consents
400 400
remaining at elevated levels. That said, builders have found
it tough going dealing with delays caused by a shortage of 200 200
materials as well as increased absenteeism due to Covid.
Source: MBIE, Westpac
0 0
2020 2021 2022
The region’s housing market has weakened, with monthly price
changes now dipping into the red. Sales volumes, which have
trended lower over time, have reinforced this negative tone. Figure 2: Residential building consents
Number Number
Labour market conditions are tight. With the return of 800 800
international tourists imminent, firms are crying out for skills 700 700
that have since transferred to other industries. The rate of
unemployment in the province is low, demand for labour is 600 600
strong and employment confidence is on the rise. 500 500
400 400
300 300
Outlook. 200 200
We expect growth in economic activity in Otago to improve 100 100
significantly over the coming year. That will help it close the 0
Source: Stats NZ
0
performance gap with other regions. 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Tourism will lead the region’s economic recovery. We think
Figure 3: House prices and sales volumes
that the arrival of tourists over the coming year will revitalise
spending in the region, boosting the coffers of retailers and Number Monthly % change
500 8
hospitality venues alike.
400 6
300
Similarly, returning international students will boost spending 200
4
in Dunedin. 2
100
0 0
We also expect agriculture to support economic activity over -100 -2
the coming year. Indeed, we expect that still strong meat -200 Prices (RHS) Sales (LHS)
and dairy prices over the coming year will support farmgate -300
-4
incomes in the region. The region’s meat producers are also -6
-400
set to benefit from less constrained processing capacity, while Source: REINZ, Westpac
-500 -8
dairy farmers should see a pickup in production volumes over 2017 2018 2019 2020 2021 2022
the course of the year.
Westpac Regional Roundup 11Southland
Current situation. Tourism to the region should also get a boost from the lifting of
restrictions on foreign visitor arrivals entering the country.
Economic activity in Southland has weakened over the past
six months. We think that house prices will fall because of higher interest
rates, and that will dampen spending. That said, Southland’s
On a positive note, farmers in the region will have been housing market may do better than the national average
buoyed by strong dairy and meat prices. Many though will because of relatively small price gains in previous years.
have found the going tough dealing with drought conditions
as well as Omicron related challenges, such as sharply higher But that is not the only factor that is likely to affect spending.
input costs and downstream processing delays caused by With interest rates rising, higher debt servicing requirements
increased absenteeism. will also weigh on discretionary spending. Expected cost-of-
living increases are likely to further dampen spending.
Manufacturing activity will have been impacted by the drought
related loss of hydroelectric generation capacity, which Figure 1: House prices and sales volumes
temporarily reduced production at the Tiwai Point aluminium
smelter. The smelter is also likely to have been affected by 300
Number Monthly % change
6
weaker aluminium prices, with slower demand from Omicron- Prices (RHS) Sales (LHS)
250 5
hit China initially offsetting the impact of the Russia/Ukraine
200 4
conflict on global production.
150 3
Meanwhile, the region’s housing market has slowed markedly. 100 2
Prices have dropped as interest rates have climbed. Sales 50 1
volumes have also trended lower, reinforcing a negative tone. 0 0
-50 -1
Construction activity in the region remains strong, with -100 -2
consents remaining at elevated levels. That said, builders have -150
Source: REINZ, Westpac
-3
found it tough going dealing with delays caused by a shortage 2017 2018 2019 2020 2021 2022
of materials as well as increased absenteeism due to Covid.
Figure 2: Residential building consents
Spending in the region remains fragile. Retail sales volumes,
which exclude the impact of inflation, have basically been Number Number
flat for the last year. Ditto for card spending, which remains 160 160
below pre-Covid levels, presumably because of the spread of 140 140
Omicron, which has forced more people to self-isolate. 120 120
100 100
80 80
Outlook. 60 60
On balance, we expect growth in economic activity in 40 40
Southland to improve over the coming year.
20 20
Source: Stats NZ
0 0
In large part that is because we expect a strong performance 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
from meat and dairy farming. Indeed, we expect that still
strong meat and dairy prices over the coming year will support
farmgate incomes in the region. Figure 3: Electronic card spending (latest: 5 June 2022)
Index 1000 = Feb 2020 Index 1000 = Feb 2020
With the drought now broken, the region’s dairy farmers are 1400 1400
expected to increase production volumes over the course of 1200 1200
the next year. Meat producers in the region should also benefit
from less constrained processing capacity. 1000 1000
800 800
The region should also benefit from higher global aluminium
600 600
prices, which in the near term is expected to reflect ongoing
supply concerns from Russia, and in the longer term a recovery 400 400
in demand from China. With the drought now broken, and
200 200
hydroelectric generating capacity restored, economic activity Source: MBIE, Westpac
in the region should also be boosted by a return to maximum 0 0
2020 2021 2022
aluminium production.
Westpac Regional Roundup 12Taranaki/Manawatu-Whanganui
Current situation. incomes. The region’s dairy farmers are expected to increase
production volumes over the course of the next year.
Activity in this region has improved slightly over the past Meat producers should also benefit from less constrained
six months. processing capacity.
On a positive note, the region’s dairy and meat producers are Meanwhile, oil and gas production could very well get a boost
likely to have benefitted from strong incomes due to still high now that border restrictions have been eased, allowing access
prices. Many though will have found the going tough dealing to highly specialised skills from offshore. With energy prices
with drought conditions as well as Omicron related challenges, likely to remain high for the foreseeable future, we could well
such as sharply higher input costs and downstream processing see an expansion of onshore exploration activities over the
delays caused by increased absenteeism. coming year.
Construction activity in the region though remains strong, Figure 1: Residential building consents
with consents still at elevated levels. That said, builders in the
Number Number
region will have found it challenging dealing with delays caused 800 800
by a shortage of materials as well as increased absenteeism
700 700
due to Covid.
600 600
Oil and gas production in the region is also up, mainly because 500 500
of in-fill drilling at the Māui A gas field. The region’s big oil and 400 400
gas producers are likely to have benefitted from skyrocketing
300 300
energy prices following Russia’s invasion of Ukraine.
200 200
On a less positive note, the region’s housing market has 100 100
Source: Stats NZ
turned down in response to rising interest rates. That 0 0
has been particularly evident in Manawatu, and more 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
specifically Palmerston North, which also saw a big decline
in sales volumes. House prices in Taranaki have been a tad
Figure 2: PMI/PSI - Central
more resilient.
Index Index
70 70
Consumer spending in the region has also disappointed. Retail 65 65
sales volumes in the Manawatu have largely moved sideways 60 60
in recent quarters while those for Taranaki have edged higher.
55 55
Electronic card spending in the region though has been resilient
50 50
and sits above pre-Covid levels. A tight regional labour market,
45 45
evidenced by falling unemployment and still strong demand for
40 PMI - Central 40
labour, will have further supported this trend.
35 PSI - Central 35
30 30
25 25
Outlook. 20
Source: Business New Zealand
20
2017 2018 2019 2020 2021 2022
On balance, we expect growth in economic activity in this
region to trend sideways over the coming year.
Figure 3: House prices and sales volumes
Weighing on the region will be the housing market. House prices Number Monthly % change
are expected to fall because of higher interest rates, and that 800 12
700
will drag on spending in the region. While the region’s housing 10
600
market has been an outperformer in recent years, this has been 500 8
based on relatively small volumes, which we think increases the 400 6
chance of a bigger correction over the coming year. 300 4
200
100 2
With interest rates rising, higher debt servicing requirements
0 0
will also weigh on discretionary spending in this region. -100 -2
Expected cost-of-living increases are likely to further -200 Prices (RHS) Sales (LHS)
dampen spending. -300 -4
Source: REINZ, Westpac
-400 -6
2017 2018 2019 2020 2021 2022
On a more positive note, we expect that still strong meat
and dairy prices over the coming year will support farmgate
Westpac Regional Roundup 13Waikato
Current situation. Residential building activity should remain elevated. Levels
of consent issuance suggest still firm activity over the coming
Economic activity in the Waikato has been mixed. year. Add to that the continued expansion of industrial space.
The opening of the Ruakura inland port later this year should
On a positive note, the region’s dairy and meat producers are support the economic vibrancy of the region.
likely to have benefitted from strong incomes due to still high
prices. Many though will have found the going tough dealing Although not a huge market for foreign visitor arrivals, which
with drought conditions as well as Omicron related challenges, often acts as a gateway to other provinces, the lifting of
such as sharply higher input costs and processing delays restrictions on foreign visitors is expected to lift the region’s
caused by increased absenteeism. For dairy producers, weaker hospitality sector.
demand from China due to the outbreak of Omicron remains a
near-term concern. Figure 1: Residential building consents
Number Number
The strong performance of dairy is likely to be a key reason why 1,600 1,600
this is one of only two regions where households are feeling 1,400 1,400
confident about the regional economy’s future.
1,200 1,200
Residential building activity also continues at pace with 1,000 1,000
consents still at very high levels. Non-residential building 800 800
activity remains robust, with several big industrial parks, such 600 600
as the Ruakura inland port, under construction. That said,
builders in the region will have found it a challenge dealing with 400 400
delays caused by a shortage of materials as well as increased 200 200
absenteeism due to Covid. 0
Source: Stats NZ
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Meanwhile, the region’s housing market has begun to slow as
interest rates have risen. Prices have fallen in four of the past
Figure 2: House prices and sales volumes
five months. Sales volumes have also tracked lower over time.
Number Monthly % change
1250 5
That may help expain why spending in the region has been
1000 Prices (RHS) Sales (LHS) 4
sluggish. Retail sales volumes have effectively moved sideways
over the past year. Card spending, which has been edging 750 3
higher and is now tracking close to pre-pandemic levels. 500 2
250 1
Regional labour market conditions remain strong. Online job
0 0
vacancies are close to record highs, while unemployment in the
province has continued to ratchet down. -250 -1
-500 -2
Source: REINZ, Westpac
-750 -3
Outlook. 2017 2018 2019 2020 2021 2022
We expect economic activity in the Waikato to be mixed over
the coming year. Figure 3: Electronic card spending (latest: 5 June 2022)
Index 1000 = Feb 2020 Index 1000 = Feb 2020
1600 1600
Weighing on the region will be the housing market. House
prices are expected to fall because of higher interest rates, and 1400 1400
that will be a drag on spending in the region. 1200 1200
1000 1000
With interest rates rising, higher debt servicing requirements
800 800
will also weigh on discretionary spending. Expected cost-of-
living increases are likely to further dampen spending. 600 600
400 400
On a more positive note, we expect strong meat and dairy 200 200
prices will support farmgate incomes in the region over the Source: MBIE, Westpac
0 0
coming year. With the drought now broken, the region’s dairy 2020 2021 2022
farmers should be able to increase production volumes over
the course of the next year.
Westpac Regional Roundup 14Wellington
Current situation. Activity levels in the capital are likely to be further supported
by the Government’s legislative programme. That will support
The economic performance of Wellington has been mixed. further employment in the public sector and mean more work
for industries that service it.
On the negative side of the ledger, there has been a sharp
correction in the region’s housing market. Indeed, after The lifting of border restrictions should also provide a timely
previously shooting the lights out, house prices in the capital boost. Although not a big tourist region, Wellington stands
have turned decidedly negative and are now back to where they to benefit more than most from an increase in business travel
were a year ago. That makes it one of the worst performing between Australia and New Zealand.
regions in the country.
Figure 1: House prices and sales volumes
However, there have also been positives.
Number Monthly % change
1000 5
Residential building activity in Wellington, underpinned by very 800 4
strong consent issuance, mostly for medium density housing 600 3
following the relaxation of housing intensification rules, 2
400
continues to power ahead. That said, builders will have found
200 1
it tough going dealing with delays caused by a shortage of
materials as well as increased absenteeism due to Covid. 0 0
-200 -1
Prices (RHS) Sales (LHS)
Also positive for the region has been the opening of the -400 -2
much-delayed Transmission Gully motorway, which has -600 -3
Source: REINZ, Westpac
improved connectivity as well as the resilience of region’s -800 -4
transport network. 2017 2018 2019 2020 2021 2022
An expanding public sector is also likely to have supported Figure 2: Residential building consents
activity in the region. Unemployment has trended sharply lower
over the past year while employment continues to rise. 1,200
Number Number
1,200
That should translate into more spending, especially in the 1,000 1,000
suburbs given that many public servants are still working
800 800
from home. However, with the housing market having slowed,
spending has at best been sluggish with sales volumes having 600 600
moved sideways in recent quarters. Ditto for card spending,
which remains below pre-pandemic levels, despite a pickup 400 400
over the Easter holidays.
200 200
Source: Stats NZ
0 0
Outlook. 2013 2015 2017 2019 2021
We expect growth in economic activity in Wellington will ease
over the coming year. Figure 3: Unemployment rate
Percentage Percentage
8 8
In large part the softer outlook is because we expect the housing
7 7
market to slow and become a big drag on spending in the region.
Indeed, we think there is every chance that house prices will fall 6 6
sharply over the coming year as interest rates rise. 5 5
4 4
But that is not the only factor that will exert a drag on spending.
With interest rates rising, higher debt servicing requirements 3 3
will weigh on discretionary spending in this region. Expected 2 2
cost-of-living increases are likely to further dampen spending. 1 1
Source: Stats NZ, Westpac
0 0
We expect home building in Wellington will offset this 2009 2011 2013 2015 2017 2019 2021
weakness to some degree. Consents are still rising, and there
is a big pipeline of work. Civil construction should also support
activity as the authorities focus on tackling well publicised
infrastructure issues in the capital.
Westpac Regional Roundup 15Contact the Westpac economics team
Michael Gordon, Acting Chief Economist Paul Clark, Industry Economist
+64 9 336 5670 +64 9 336 5656
Satish Ranchhod, Senior Economist Any questions email:
+64 9 336 5668 economics@westpac.co.nz
Nathan Penny, Senior Agri Economist
+64 9 348 9114
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