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Otago's economic activity remains in the top three areas around the country for growth, underpinned by a population boost, the rural economy and housing.
Southland scored highly as well, more from an immigration input, and despite weakening farm-gate incomes.
Of 10 economic measurements in Westpac’s quarterly regional roundup, Otago was above its five-year average in six areas; more than double in the case of economic confidence and with healthy gains in visitor guest nights and higher house price growth gains.
However, Otago’s retail sales were flat at about $1.28 billion, unemployment rose, tourism had flattened out at 1.52 million guest nights and manufacturing was cooling from recent highs.
While year-ahead economic prospects remain good for Otago, further out there are cooling effects expected to come into play with some dampeners on growth, some of which are mirrored in Southland as well.
Westpac chief economist Dominick Stephens said during the past two years Canterbury, Auckland and nearby regions were "laggards", while the southern portion of each island bounded ahead, with Otago, Wellington and Hawke’s Bay particular standouts.
"Otago is one of the strongest performing regions in New Zealand, although the degree of outperformance was less marked this quarter," he said.
For the latest quarter to September, Otago had "nudged higher, was "slightly higher" than the corresponding period last year, but against the five-year average Otago was "significantly better", Mr Stephens said.
"Population growth has accelerated sharply and is now the second-highest in the country after Auckland."
Mr Stephens said most of the growth was centred on the Queenstown Lakes and Central Otago districts but October data from Statistics New Zealand showed Dunedin’s population exceeded 130,000 for the first time.
The city’s population grew by 1900 people, or 1.5%, to 130,700, for the year to June.
Mr Stephens said the pattern of population growth in Southland differed markedly from the rest of the country.
While that growth remained typically quite slow, even during the recent national population boom, foreign migration to the Invercargill district was significant, being dominated by people from India, mainly for educational purposes.
"Internal migration to this district is largely made up from people from other regions in the South Island, and from other districts within Southland."
Southland’s house prices were rising faster, and in double-digit figures, which reflected the affordability of houses, which was attracting the attention of investors and first-time buyers.
Mr Stephens noted Otago house prices continued to also post double-digit growth, although growth was marginally down on the previous quarter.
Compared to the rest of the county, Otago house prices rose 18% in October, against the national average of 6%.
House values in November in Dunedin were up 11.7%, up 7.7% in Central Otago and 6.2% in Queenstown lakes - against the 3.5% average national gain.
The Otago five-year average for quarterly house sales was 1151 and for the past quarter 1162, while the house price average had eased back to 10.1%, against 10.9% for the five-year average.
Mr Stephens said while having slowed slightly, Otago continued to experience strong population growth, easily outpacing residential construction activity, particularly in the Queenstown-Lakes district.
"A resulting shortage of housing stock and higher prices has encouraged buyers to look elsewhere in the region," he said.
Buyer interest was high in Dunedin and surrounds, with strong interest from people in Auckland and Queenstown.
"Economic conditions are likely to remain strong for most rural regions, but they are not expected to improve noticeably over the coming year," he said.
Farm-gate incomes were likely to be affected by a further slowdown in global commodity prices, although some relief may be provided by government spending on social transfers, Mr Stephens said.
Mr Stephens said conducive weather conditions were likely to have supported the production of grapes in Otago, which implied increased wine production.
Last week the ODT reported early cherry varieties were just starting to be picked in Central Otago, and despite some fierce weather in recent weeks, orchardists were hopeful of another good season.Otago’s unemployment "ticked higher" for the quarter, up from 3.2% to 4.1%, after fallingsharply in the preceding quarter.
It now sits higher than the national average.
"Activity in the region’s services sector, led by tourism, seems to have flattened out while growth in manufacturing output looks to be slowing," Mr Stephens said.
"The softer tone is evidenced by a fall in the number of people employed in the region with a decline in job vacancies confirming a slowdown in demand for labour."
Mr Stephens said the slightly softer labour market and slowing tourist numbers were likely to be key reasons consumer spending may have plateaued.
Guest nights from quarter to quarter were down from 1595 to 1524, but just above the five-year figure of 1426. Despite the still buoyant housing market, Mr Stephens said Otago retail sales had effectively flatlined while new vehicle purchases showed marginal growth.
Previous star performers like Otago and Wellington had cooled slightly.
"It’s still the case that the southern part of each island is outperforming the northern part, but the gap is starting to close," he said.
During the year ahead, Mr Stephens expected a swing back towards consumer spending and rising housing price, which would be felt more acutely in northern parts of New Zealand close to Auckland. Southland’s "extraordinary run of outperformance" was unlikely to continue, although the region’s economy would remain supported over the year ahead.
"Further ahead we would expect activity in the region to weaken as slower population growth and a weaker housing market begin to weigh on spending," Mr Stephens said.
Otago’s economic outperformance is partly based on the "extraordinary burst of population growth" which boosted construction activity and pushed up house prices.
That scenario was likely to persist for Otago’s year ahead with low mortgage rates and the recent easing in bank mortgage lending restrictions.
Beyond 2019, he expected the national economy to slow again, partly as a result of population growth.