From cities to agriculture hubs and remote tourist towns, the current state of the economy hasn’t impacted us all equally. Kiwibank economist Sabrina Delgado breaks down the numbers by region.
The media bombardment of a looming recession and the cost-of-living crisis, as well as our own experience in the supermarkets, mean most Kiwi are aware that the economy hasn’t been faring too well.
What is less easy to see is how the regions have held up under these conditions. Distributive effects aren’t always equal. Aotearoa is made up of some very unique regions – from agri hubs to big urban centres to tourist hot spots, each region adds something different to the Kiwi economy. And each region can be impacted differently by economic conditions.
So, if you’re in Wellington wondering whether the grass is greener on the other side – spoiler alert: it is. But anyone could have told you that. Or maybe you’re looking for some hometown bragging rights. Well then look no further!
Our Kiwi Economics team has done a deep dive into the regions. After looking at a range of data and working a bit of magic (applying statistical techniques), we’ve mapped performance by region.
At first glance, two themes emerge.
- The regions have had a wild ride in recent years.
- Economic activity has cooled across all regions.
All regions have recorded scores between what we describe as “Frozen, get the defibrillator” (1) and “So cold it’s chilly, but not esky” (3). These are very low scores indicative of a recession.
Otago gets our trophy for best economic performance with a lonely high score of 3.6. But before the scarfies celebrate, we should point out that Otago’s win was largely thanks to Queenstown – our tourist mecca.
Outside Otago, the South Island fared better than most of the North Island. However, the southern regions experienced the most drastic slowdown compared with last year. On average, activity in the south went from ‘Just right’ (5) in 2022 to “chilly” (2) today.
The performance in the farming regions too has become rather lacklustre. Compared to last year, Canterbury’s score has fallen 2.4 points to 3 out of 10, and Waikato is down 1.3 points to 1.9. Undoubtedly a result of lower global demand and prices for our agricultural exports.
Overall, the weakest performing regions included Auckland, Wellington, Waikato, and Manawatū/Whanganui.
So how did we get here?
It has been a wild ride in recent years. Activity was crushed during the Covid lockdowns, only to rebound much faster than anyone could have imagined. That rebound caused inflation. And inflation is an evil that policymakers are hell-bent on crushing, at any cost. We can see that cost. It’s the RBNZ’s job to tame inflation. They do this the only way they know how – by lifting interest rates until they hurt. Recessions kill inflation, but impact all of New Zealand.
Let’s take a deeper look into the regional highlights…
Labour market
Last year was all about labour shortages as firms struggled to fill vacancies. But not any more. Migration surged to a record net gain of 110,200, with migrants helping fill long held vacancies. However the net figure masks the fact that we gained 152,000 migrants while losing 42,000 Kiwis flying offshore.
Nationally, employment has expanded a whopping 4% over the year, with tourism the main beneficiary. Tourism-related employment has now returned to pre-Covid levels with the top 10 occupations of those coming to our shores concentrated in the services sector, specifically hospitality. As such, Otago – boosted by Queenstown – recorded the strongest employment growth (5.8%). For the same reasons, the Bay of Plenty recorded a solid 4.6% lift in employment.
Our bigger cities have also benefited from the return of work-ready migrants. In Auckland, Wellington and Canterbury, employment jumped between 4% and 5%.
Another indication that labour shortages have been resolved is the fall in job ads, down 22% in the year to June. It also shows that demand for labour is softening. Of the 10 regions, eight recorded a +20% decline from their respective peaks. Auckland posted the steepest descent of 27%, back to 2019 levels. We still expect a significant slowdown, with a recession set to hit in the second half of the year. As consumer demand cools, so too will labour demand. A rise in unemployment is imminent.
Housing
There are mixed gains and losses across the regions, but green shoots are emerging. For much of the past two years the housing market has fallen under the pressure of tightening credit conditions, rapidly rising mortgage rates, investor tax policy changes, and stretched affordability. But it seems that a recovery is afoot. Since their peak in November 2021, house prices had fallen a cumulative 17.7% – bottoming out in May. Since then, house prices have risen 2.8% with further signs of strength to come.
After some hefty falls, Auckland and Wellington house prices have managed to increase by a monthly run rate of about 1% since June.
But beyond the big cities the regions are playing catch up. House prices in Northland only hit a peak in January last year and remain in a downtrend. Meanwhile down south, Canterbury’s housing market has experienced a softer landing compared to the sharp fall in other markets. House prices in the Garden City have fallen just 8.5% from the peak.
Turning to supply, in most regions building consents are trending lower. In the year ended July 2023, new dwelling consents fell 13.8% in Auckland and close to 20% in Wellington. The South Island experience was not too dissimilar with an 11% drop. Looking ahead, dwelling consents may soon flatten given signs of recovery in the housing market and surging net migration. But we need a re-acceleration if we are to truly address the lack of affordability.
Retail sales
High interest rates on top of a cost of living crisis are taking a toll on Kiwi consumers. Spending has been weak despite record high migration and near record low unemployment. Compared to last year, the value of retail spend is up 2.7% nationwide. But it’s largely a story of inflated prices. Retail volumes fell 3.4% from last year. We’re spending more to get less. Gisborne experienced an inflated surge of 9.2%, as rebuilds, replacements, and refurnishings followed the devastating cyclone. Meanwhile a return in tourism has supported retailing in Otago and Canterbury, up 8% and 5.1% respectively.
Outside these regions, the value of retail sales tumbled below average. With high inflation, weak sales values indicate a significant decline in volumes. Waikato was at the bottom of the pack with retail sales down 0.3%. Northland, Auckland, the Bay of Plenty, Hawkes Bay, Taranaki Whanganui/Manawatū, and Wellington all came in well below average.
Across the regions, the outlook for retail sales is gloomy. Clean-up-related sales from the cyclone and floods are mostly done now. And with 40% of mortgages refixing onto higher rates in coming months, disposable incomes will be squeezed further.
Tourism
After just a year from re-opening the borders, tourism has bounced back strongly, but is still soggy. In the year to June 2023, total international card spend grew just 0.1%, relative to pre-Covid levels.
The top of the South Island takes bottom place with international card spend down 5.5% relative to pre-Covid levels. But Otago, down 3.2% from pre-Covid levels, accounts for 20% of NZ’s international tourism card transactions. That’s massive. Whereas Wellington’s seemingly impressive 7.3% growth above pre-Covid levels only accounts for 8% of total spend. Bear in mind, these values are not inflation-adjusted. Adjusting for rapid price rises shows that volumes of spending are well below pre-Covid levels. But we think there’s upside to come. The strong return of migrants has helped fill crucial vacancies needed to service demand. A global slowdown and a weak Chinese economy do pose some risk to tourism making a full recovery over the next year, however.
The takeaways
The Reserve Bank has deliberately engineered a recession to coax the inflation genie back into the bottle, and our regions are feeling the frosty chill. But it’s not all doom and gloom. Inflation has peaked. And the sooner we see inflation fall back towards 2%, the sooner the Reserve Bank will shift into reverse and we’ll see an improvement in scores across all regions. There is light at the end of the tunnel.
