Otago had continued to "do it tough" as the closure of the international border and heightened restrictions on Aucklanders’ ability to travel severely curtailed activity in the region. That was clearly reflected in hospitality and retail spending, both of which were well off pre-pandemic levels.
The emergence of the Delta variant of Covid-19 has created a performance gap between regions that were forced into lockdown and those that were able to operate with fewer restrictions. That was set to close with the introduction of the traffic light system and the opening of the borders., Westpac industry economist Paul Clark said.
As most restrictions on economic activity were lifted, the report picked Auckland, Waikato and Northland to quickly catch up with other regions that have been able to operate with fewer limitations. Otago should soon follow once internal borders are lifted and foreign visitors were allowed back in the country.
Further underpinning the outlook in Otago was the ongoing strong performance of agriculture; meat farmers were already benefiting from record high farmgate prices while the bank expected a record high milk price of $9kg ms for the 2021-22 season. It also expected a further weakening of the New Zealand dollar would give agricultural export prices another boost over 2022.
Home building activity should continue to support the region’s economy, particularly given the "huge" amount of work still in the pipeline. The bank expected the housing market to buck the overall positive trend.
House price growth was set to slow over coming months, turning negative in the second half of the year. However, there was potential for the region’s housing market to outperform other regions given its relatively modest price gains over the past year.
Economic activity in Southland, which was less affected by Delta restrictions, had been strong and that had been reflected in spending in the region which had continued to strengthen over recent months, the report said.
Farmers had benefited from rising prices and manufacturing had largely recovered from earlier Delta-related disruptions. Exports had been the key driver of manufacturing activity in the region.
Tiwai Point’s aluminium smelter had benefited from higher aluminium prices which remained at healthy levels while several food manufacturing businesses in the region had also benefited from the global economic recovery.
House prices continued to be at record highs although monthly gains had slowed and sales volumes had also tracked lower in recent months. Like Otago, house price growth in the region was expected to slow over coming months, turning negative in the second half of the year.
That slowdown could be quite steep given the very thin market that operated in the region, the report said.
