Westpac Regional Roundup, October 2024

Our Regional Roundup report summarises feedback that Westpac’s teams across the country have heard from households and businesses, giving an ‘on the ground’ view of the conditions that different regions are experiencing.

Economic conditions have remained chilly right across the country, with households and businesses in every region reporting ongoing challenges. However, the feedback we received also suggests that some of those frosty conditions are showing early signs of thawing, and there is growing optimism about the outlook for the economy over 2025.

It’s still tough out there…

Looking first at how the economy has been tracking in recent months, one comment we received succinctly noted “there is still a lot of pain out there.” In the household sector, many families have been reining in their spending as cost-of-living pressures continue to bite. That’s seen widespread falls in retail sales and particular weakness in the hospitality sector. We’ve also seen continued softness in sectors like construction and manufacturing, with declines in both the amount of work being completed and forward orders.

Very few firms told us they were looking to take on new staff and many have been reducing the size of their workforces. In some cases, businesses were simply not replacing staff who left, but we also heard widespread reports of restructuring. Those conditions have seen unemployment pushing higher right across the country.

…but signs of a turn are emerging.

While conditions are still tough, some of the weakness in economic activity that we saw over the past year looks like it’s now easing. A number of businesses noted that demand had been ‘flat’ or ‘mixed’ in recent months. Although those comments are a long way from signalling a return to trend rates of growth in the economy, they are an encouraging change from the very downbeat comments we heard a few months ago.

There are also some bright spots for the economy, with a continued trend higher in international visitor numbers and a firming outlook for some of our key agricultural exports.

Feedback on cost pressures was also less worrying than it has been for some time. Although costs aren’t dropping back, reports of large increases and the related pressure on margins have become less prevalent (though there are clearly some ongoing pain-points, like the cost of insurance and local council rates).

Perhaps the most notable change since our last survey was the sense that the worst is finally behind us. A number of businesses said that the start of the Reserve Bank’s interest rate cutting cycle was a welcome relief, and they’re optimistic that the fall in interest rates will help to stoke demand over the year ahead.

All of this is very consistent with our forecasts for continued soft growth over the remainder of this year, with a gradual firming in activity taking hold over 2025.

The North-South divide.

Looking across regions, feedback from those in the South Island was ‘less negative’ than what we heard in the north. In part, that’s due to improving conditions in some of our agricultural industries, like dairy and horticulture, with export prices pushing higher in recent months. There’s also been an ongoing recovery in international visitor numbers, which has been supporting spending in areas like Queenstown. Even so, conditions are still mixed and many businesses we spoke to have continued to report weak demand.

Feedback across the North Island was more downbeat, with widespread reports of falls in spending and job losses. There has been notable softness in Wellington, where restraint in government spending and the related public sector job losses has seen confidence languishing at low levels. However, we’ve also seen tough conditions in many other regions, with businesses in the retail, hospitality and construction sectors all reporting falls in sales and job losses.

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