The divide between the North and South Islands has widened significantly this quarter, with the North Island regions taking out the top nine spots on the table, and the South sitting in the bottom seven. While we have seen this trend over the past year, it has become even more obvious in this most recent scoreboard.
"International tourism makes up a larger portion of spending in the South Island in areas like Queenstown, the West Coast and the Sounds, so they are likely impacted more and suffering disproportionately from the lengthy border closure," says ASB chief economist Nick Tuffley.
The South Island property market also hasn’t been as constrained as it is up north, and consequently, it hasn’t enjoyed as much of a residential construction boom, and house price gains have been a bit more modest.
Another strong performance from Northland has seen the region hold onto its crown for the third consecutive quarter, posting strong results across the board.
"Once again, solid job growth is underpinning Northland’s strength, lifting nearly 5% year-on-year. The region’s improving labour market looks to be coinciding with a construction boom, with Northland also topping the country for residential building consents granted.
"Beyond that, the region continues to perform well on almost every other metric we monitor, from new car sales to consumer confidence. Northland was one of the hardest hit by the drought over the summer, but there’s little sign it put a dampener on things."
Northland also benefitted from its strong forestry sector. Prices are currently at
all-time highs with export volumes performing well and the booming construction
outlook domestically acting as a key support.
"All-up, we are impressed by Northland’s ongoing comeback, particularly in light of the challenges the region faces, like the closure of the Marsden Point oil refinery."
In the three months to March 2021 rural regions generally outperformed the major urban centres on the Scoreboard. Northland’s forestry sector contributed significantly to this, in part thanks to the recovery in China. During the same quarter, Waikato continued as a microcosm of the broader New Zealand story, taking fourth place thanks to its large exposure to the dairy sector.
The ongoing resilience of the country’s primary sector has helped support the broader New Zealand economy through the pandemic, and Mr Tuffley says this is set to continue.
"Food and beverage exports have been performing exceptionally well all things considered, and we don’t see this slowing anytime soon. In fact, the ASB Commodities Index (a weighted index of New Zealand’s major exports) hit its highest monthly averages ever in March, April and May this year, and we’re forecasting a bumper $8.20kgms milk price for the 2021/2022 season.
"Based on this, it’s not surprising to see regions with a high reliance on agriculture and farming are generally performing a lot better than others."
House prices have continued to be both an economic stimulus and a policy challenge for the country, hitting new all-time highs in the last three months. Mr Tuffley says tax policy changes introduced by the Government may not curb the runaway market as much as hoped.
"We briefly lowered our house price forecasts a shade off the back of those measures but expected the market to avoid a hard landing. It’s early days yet, but the strength of the market even after the tax changes were announced saw us revise our house price forecasts back up."
Construction demand has also ramped up, however meeting this demand is becoming increasingly challenging.
"There’s a bit of give and take when it comes to construction at the moment. Demand remains very, very strong, with consent issuance exceeding its previous peak, up as much as 18% on pre-COVID levels through the first quarter.
"However, there is clear evidence that the sector is running up against major capacity constraints, with labour shortages and limited raw materials both pain points. With no signs of demand slowing, we can expect to see swelling construction inflation,” says Mr Tuffley.
In Southland, employment, retail sales, construction and the housing market all underperformed in the past three months, which Mr Tuffley attributes in part to the impending closure of Tiwai Point smelter and the proximity to Otago, which has been struggling thanks to its reliance on tourism.
Otago climbed two spots but remains near the bottom of the table.
"Tourism hubs like Queenstown continue to face significant challenges, with employment numbers down 5.2% from the beginning of last year, when visitors were flowing freely. In fact, this quarter, Otago was below the national average on every other metric we measure (including posting a 27% fall in construction).
"We hope the region sees further gains from the trans-Tasman bubble through the winter, though given Aussie tourists are often visiting friends and family and have a comparatively low spend per head the journey to a decent recovery looks set to take a while longer," says Mr Tuffley.
The full ASB Regional Economic Scoreboard, along with other recent ASB reports covering a range of commentary, can be accessed at our ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html