Westpac Regional Roundup, October 2023

Nationwide trends

Our recent discussions with households and businesses have highlighted that New Zealand is now in a tougher phase of the economic cycle, with some key trends being seen right across the country.

First, is that demand conditions are cooling. The softening in activity has been widespread, but it’s been especially pronounced in the construction and manufacturing sectors. Businesses in the Waikato and Northland reported a particularly sharp fall in demand in recent months.

Another key trend that we’re seeing across the country is the impact of high inflation. Increases in living costs are squeezing households’ budgets, while high operating costs are eroding businesses’ margins. Notably, rising interest costs are becoming an increasing concern. In the case of households, that pressure is set to become even more stark over the coming months as increasing numbers roll onto higher fixed mortgage rates.

Conditions are also changing in the labour market, with businesses in nearly every region telling us that it has become easier to find staff since the border had reopened and migration had picked up. Even so, at this stage were not hearing widespread reports of reduced pressure on wages.

Looking across the regions

While households and businesses in all parts of the country reported challenging economic conditions, we are seeing some notable differences across regions. Conditions in Auckland have been more resilient than in other parts of the country. In part, that’s due to the reopening of the border 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.

We’re also seeing some more positive indications in Otago which is benefiting 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.

It’s a markedly different picture in many of our more rural focused regions. The downturn in commodity prices has been weighing on earnings and spending appetites. In addition, these areas have not benefitted from the recovery in international tourism or migration to the same extent as more metropolitan areas. We’re seeing particular softness in some of those regions that were heavily impacted by the severe weather earlier in the year, including the Bay of Plenty.

Gisborne and the Hawke’s Bay bucked the trend. 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.

Authors

Shania Bonenkamp, Graduate and Satish Ranchhod, Senior Economist

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