The Regions Show Signs Of Recovery. 2025 Will Be Better. Wellington Has Been Hit The Hardest.

• Economic activity has improved across the motu – but only just. Our regional heatmap has gone from flashing mostly 2s out of 10 to a scattering of 3s, 4s, and a single shining 5. The economic scores are still soft, but it’s an improvement nonetheless.
• Southland is the top performing region, with activity boosted by a building boom. Auckland’s activity is still weak, despite strong population growth. And it’s feeling bitterly cold in Windy Wellington, with a Jack Frost score of just 2, the same as last year. The bright spots, hidden beneath the surface, reflect the recovery in tourism. Otago is a strong performer.
• Looking ahead, inflation is easing, interest rates will fall, and business confidence should strengthen. Spring is coming, and most regions will defrost.

“It feels better than it did last year, but it's still tough!” – Caitlin Osmond, Commercial Manager, Wellington.

That sums up perfectly our latest look into the regions.

Without a doubt, 2023 was a rough year. Activity levels were dire, with most regions recording frost-bitten scores of between 1.7 and 3 out of 10. The ‘on the ground’ sentiment scores were no less gloomy. We are still in a recession… it started in 2022, and we’re still recording declines. However, 2024 is shaping up to be a better year – just. Economic scores have started defrosting across the motu. Our regional heatmap is now flashing mostly 3s out of 10, with an encouraging share recording 4s as well as a single shining 5. The regions are performing better than last year, but are not at their best. It’s still a tough gig navigating the current economic environment. But next year should be an even better year. Because rate cuts are coming, and will breathe new life into a rather deflated economy.

The South Island is faring better than the North, with Southland leading the way. Murihiku (or Southland) may be the “tail end of the land”, but it is at the top of the leaderboard with the highest score of 5. As building activity in the rest of the country has slowed down, Southland has ramped up. New dwelling consents are growing at pace, supporting construction and housing activity in the region. Otago is another top performer (4/10), thanks to the ongoing recovery in tourism. Queenstown just feels better. The recovery continues to support employment and the housing market in the region. Progress, however, could be better. Because short-term visitor arrivals into New Zealand are still running 20% below pre-pandemic levels. Canterbury’s score also improved to a 4, as the post-earthquake rebuild underpins activity. However, drought conditions have continued into the winter, making it tough for farmers and growers in the region.

Scores for Northland, Waikato, the Bay of Plenty and Hawke’s Bay have all lifted to a 3 out of 10. It’s an improvement from the average score of just 2.1 last year, but still signalling subdued activity. Indeed, the unrounded scores for the Bay of Plenty and Hawke’s Bay are sitting at 2.7 and 2.8, respectively. Employment growth in the BoP underperformed from last year and the HB recorded the second deepest slide in building consents.

Of all regions, Auckland’s performance has been the most disappointing. Not because it has the lowest score – Wellington takes that crown. But because activity indicators across employment, dwelling consents, and housing in the City of Sails are tracking largely in line with national averages – despite benefitting the most from the 2023 migration boom.

All regions recorded an improved score, bar one – Wellington. Down in the Capital, the score is unchanged at an icy 2. Reductions in Government spending and headcount will be a significant drag on activity throughout the region. Businesses are no doubt bracing themselves for tougher times over the coming year.

Looking over the past few years, it’s been a nauseating rollercoaster ride for the Kiwi economy. The pre-Covid period saw the economy humming with regional scores of between 5 and 7.5. Then Covid hit in 2020, and the score cards came in icy cold, between 0.9 and 2.8. Unprecedented fiscal and monetary policy followed and lit a fire under the economy. Regions flashed red-hot scores of between 8 and 10 in 2021. But as inflation spiked, fast and furious rate hikes poured cold water on households and businesses. Scores plunged, and the economy recorded a double-dip recession. It’s now 2024 and activity is beginning to thaw as rate relief nears.

Ultimately, it’s all about inflation. And inflation is set to fall back within the RBNZ’s 1-3% target band by year-end. It has become a ‘sure bet’ that the RBNZ will cut interest rates sooner than they anticipated (second half of 2025). Rate cuts will lower the cost of leverage, and bolster investment intentions. Business confidence will return. Household stress will ease. And investors will step back into the housing market, with improving rental yields. We expect to see economic scores improve across all regions next year.

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