But primary sector headwinds developing
Rapid jobs growth and population growth have continued to support regional economic momentum, but primary sector headwinds are developing, according to Infometrics.
Some areas across New Zealand continued to experience solid growth despite inflation and interest rate challenges facing households, while others remained hampered by the ongoing impacts of wild weather over the first half of 2023.
Infometrics’ June 2023 Quarterly Economic Monitor showed an increase of 1.4%pa in provisional economic activity in the June quarter.
“Another strong increase in employment, the rise in the working age population, and the 0.3% quarterly increase in hours worked in the economy have combined to suggest a rise in underlying economic momentum picked up slightly after falling back earlier in the year as weather disruptions dominated,” said Brad Olsen (pictured above), Infometrics CEO and principal economist.
“This increase would see economic growth on average over the 12 months to June 2023 come in at 3.1%pa.”
Employment activity has continued strong in the past few months, with filled jobs now up 3.5%pa in the June quarter compared to the prior year.
“Otago, Auckland, Marlborough, and Waikato regions all saw jobs growth of more than the national average in the June quarter, which has supported stronger economic activity trends,” Olsen said. “Tourism-focused employment has supported stronger jobs growth, with more than 10,000 additional roles in the accommodation and food services industry supporting the still-robust level of domestic travelling going on, plus the continued revival of the international tourism sector.”
He said there were developing headwinds, however, with building work currently still at elevated levels but with a weaker outlook emerging.
“Residential building consents are down 20%pa in the June quarter, as lower house prices, higher building costs, and difficulty obtaining loans limit further construction,” Olsen said. “Primary sector output is being hampered too, restricting future growth prospects across regional New Zealand.”
The ANZ Commodity Price Index showed a 20%pa decline in dairy prices, while meat prices and forestry prices were down 14%pa and 12%pa, respectively.
“Accounting for inflation, forestry prices are the lowest since at least 1986, and the cut to the dairy pay-out is expected to cost in the order of $2.2b in the 2024 season,” Olsen said. “On-farm costs are up 12%pa, which together with the price cut will see spending and investment activity across the primary sector heavily curtailed.”
The economy over the next 12 months will continue to be challenging as higher interest rates continue to subdue spending and investment and with the labour market to become less tight as more people become available for work exactly as fewer jobs are offered up, the Infometrics economist said.
Read more details about the Quarterly Economic Monitor.
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