The country is now in a tougher phase of the economic cycle, economists say
New Zealand is now in a tougher phase of the economic cycle, with some key trends being witnessed right across the country, according to Westpac’s Regional Roundup.
The report summarises feedback from the big bank’s teams across the country to give an “on the ground” view of how households, businesses, and regions are faring with the major changes happening in New Zealand’s economic landscape.
One trend identified in the report was a cooling in demand conditions.
“The softening in activity has been widespread, but it’s been especially pronounced in the construction and manufacturing sectors,” said Satish Ranchhod, Westpac chief economist. “Businesses in the Waikato and Northland reported a particularly sharp fall in demand in recent months.”
Another key trend Westpac observed across the country was the impact of high inflation.
“Increases in living costs are squeezing households’ budgets, while high operating costs are eroding businesses’ margins,” Ranchhod said. “Notably, rising interest costs are becoming an increasing concern.”
That pressure will likely become even more stark for Kiwi households over the coming months as mounting numbers roll onto higher fixed mortgage rates.
Westpac also noted a change in labour market conditions, with businesses in nearly every region reporting that it has become easier to find staff since the reopening of borders and with the surge in migration.
“Even so, at this stage we’re not hearing widespread reports of reduced pressure on wages,” Ranchhod said.
While households and businesses in all parts of the country reported challenging economic conditions, there are some notable differences across regions.
In Auckland, conditions have been more resilient than in other parts of the country, due in part to the border reopening and related surge in the region’s population growth.
“More generally, Auckland’s service-oriented economy is holding up, with the recovery in international tourism one factor that is supporting demand,” Ranchhod said.
Otago, too, has shown some more positive indications, with the region benefitting from the recovery in international tourist arrivals and related lift in hospitality spending.
“The region’s housing and construction sectors are also holding up better than in other parts of the country,” Ranchhod said.
The picture’s markedly different in many of the country’s more rural-focused regions, the Westpac economist said.
“The downturn in commodity prices has been weighing on earnings and spending appetites,” Ranchhod said. “In addition, these areas have not benefitted from the recovery in international tourism or migration to the same extent as more metropolitan areas.”
Westpac said it is seeing a particular softness in Bay of Plenty as well as some of the other regions heavily impacted by the severe weather earlier in the year.
“Gisborne and the Hawke’s Bay bucked the trend,” Ranchhod said. “While these regions are still recovering from February’s cyclone, recovery efforts are supporting construction activity and spending. Even so, there are still some challenging conditions ahead for these regions.”
Read Westpac's Regional Roundup for October 2023 for more details about the regions.
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