ASB chief economist Nick Tuffley yesterday said Otago's fall from grace in the three months ending March came as capacity constraints curbed activity growth.
``But, as we point out in other regions, that growth rate slow-down is inevitable when a region has been running hot and is hitting capacity constraints.''
Constraints were most obvious in the accommodation sector, where guest nights could not lift if hotels were fully booked.
Likewise for retail sales growth. Cash registers had been ringing loud and hard for the past few years but the rate of growth in annual sales was now not as high as elsewhere, he said.
The construction sector remained healthy, although the total value of construction consents was off its recent peak.
The value of residential permits was at a record high although non-residential consents were off their record peak, Mr Tuffley said.
``In sum, the level of consents over the past year should keep the hammers swinging for a while longer.''
House prices were still on the rise although the growth rate was slowing and turnover kept falling.
Lending restrictions were affecting parts of the housing market in Otago and that was expected to continue.
However, while the level of activity remained so high, the ASB/Main Report score card continued with its five-star rating of Otago, he said.
Although Otago kept its five-star rating, it slipped five places to 12th out of 16 regions, ahead of Auckland, Taranaki, Southland and Canterbury.
Otago-Southland Employers Association chief executive Virginia Nicholls was surprised by the fall.
Otago continued to be a steady achiever, she told the Otago Daily Times.
When a close look at the data was taken, construction, which was the value of both residential and non-residential consents, was up by 50% on the three months ended March last year.
House prices and sales had climbed by 15%, new car sales had increased by 7% and retail sales were up by 5%.
Those figures also lined up with the BNZ-BusinessNZ Performance of Manufacturing index and the Performance of Services Index during the same period, both of which showed positive sustained growth in both construction and tourism.
``When we compare these increases in Otago to the New Zealand average, construction is more than three times higher, house prices are not quite double the national average and retails sales are the same as the New Zealand average. Car sales increased by 7% in Otago, but we are behind the national average of 16%.
``When you have a high baseline, realistically it is more difficult to achieve ongoing high percentage increases.''
ASB was reporting hotels were often fully booked in the region, which was limiting the growth of the accommodation sector, Mrs Nicholls said.
Airbnb was a ``significant'' relatively new phenomenon which might not be included in the ASB data. It was increasing the available accommodation across the region, particularly in Queenstown and Wanaka.
Employers were still continuing to report skill shortages across the tourism sector, including cafes and restaurants, along with accommodation. Construction was still frantically busy and IT continued to report skill shortages.
Businesses were continuing to ask for access to skilled migrants in jobs for which New Zealanders were not available.
Mrs Nicholls was encouraged by the increased activity in Southland.
Part of the increase was due to the business community uniting behind the Southland Regional Development Strategy, which was starting to show rewards.
Construction sector activity was lively and house price growth was right on the nationwide average.
Dairy farmers' bank balances were improving all the time and Mr Tuffley expected that to translate to broader strength in the local economy.
``Perhaps come the second half of 2017, Southland may charge up the rankings. Watch this space.''
Mrs Nicholls said vehicles were purchased for private use or for a business, and were an indicator of how optimistic people were feeling.
Southland's significant increase in new car sales was supporting the increased activity seen in the region.
