Region’s economy above 5-year average

Otago’s mild weather and early spring conditions may be buoying regional economic confidence, in...
Otago’s mild weather and early spring conditions may be buoying regional economic confidence, in contrast to national sentiment, which is at a more than nine-year low. Photo: Gerard O'Brien
Otago's economy remains "significantly" above its five-year average, but expected declines in house prices could prompt a drag on household spending.

The early unseasonal spring conditions may yet buoy several primary sectors, but they also raise the prospect of farmers again having to  deal with near-drought conditions this coming summer.

Westpac industry economist Paul Clark said the factors driving New Zealand’s economic growth were changing.

"Those that have underpinned activity previously, such as net inward migration, rising house prices and construction activity, have started to dissipate," Mr Clark said.

He noted Otago and Southland were among six regional areas where house prices had risen rapidly and the impacts of a slowdown were yet to be felt.

While nationally merchandise exports and tourist arrivals had been strong throughout the latest quarter,  new drivers such as increased social payments by the Government had come to the fore, Mr Clark said.

"All regions should benefit from increased social payments made by Government."

Of the 10 economic indicators in Mr Clark’s regional roundup for the quarter to June, seven of Otago’s were above the five-year average.

They included higher averages during the past quarter in retail sales, car and commercial vehicle registrations, guest nights and new dwellings consented.

However, the volume of Otago house sales was down on the five-year average, as was the annual house price rise, which over five years had averaged 10.3% but was  9.5% in the latest quarter.

Mr Clark said in the short term Otago should see improved activity, but because of an expected "slowing" in Otago house prices, household spending would fall.

"This is particularly relevant in Queenstown, where there has been significant demand for investment properties and there is evidence to suggest that the market is already beginning to turn," he said.

Mr Clark said agricultural and horticultural exports  from Otago would support the region’s activity and the weakening  New Zealand dollar would probably offset a weakening in commodity prices.

A weak kiwi would  attract international tourists, while more Auckland to Queenstown flights should also support growth.

Otago Chamber of Commerce chief executive Dougal McGowan also pointed to household and retail spending as key indicators.

He expected to see an easing in spending, and petrol and food costs  become more dominant than usual for households, he said.

In ANZ’s consumer confidence  survey for August, released yesterday,  ANZ chief economist Sharon Zollner said consumer confidence  remained unchanged in August, compared with last month, and sitting around its historical average.

The current conditions index fell 1 point to 124 in August, while the future conditions index was unchanged at 114, but below its average of 122.

"Households are upbeat about current conditions but remain a little cautious about the outlook.

"Disquiet is focused on prospects for the broader economy over the next 12 months rather than households’ own finances, in what is likely an echo of weak business confidence survey results," Mrs Zollner said.

Mr Clark said while Wellington was likely to get an additional boost from the Government ramping up its own spending, activity in  rural regions should be supported by investment from the Provincial Growth Fund.

Examples included the fund having supplied  funding towards investigating Dunedin’s proposed waterfront project. Economic confidence in Otago in recent weeks appears to have been going against the grain of national sentiment, which is at a more than nine-year low. Mr McGowan said Otago’s positive regional economic confidence, at 31 points for the past quarter compared with the five-year average of 16.2, was probably down to the mild, spring-like conditions.

"The blossom is out early and people are looking forward to the new season," he said.

He said the primary sector was enjoying a good start to spring, with improved growth, which also boded well for vineyards and fruit growers, and potentially the fattening of new lambs and possibly an early start to the killing season for meatworks.

He was hopeful a warm spring would in turn bring rain,  to better prepare for a potentially dry summer  and  to top up hydro storage levels.

Mr Clark said Otago’s agricultural, horticultural and viticulture sectors were "back on track" after widespread drought conditions earlier in the year.

Elevated commodity prices and the weaker New Zealand dollar had helped boost export earnings.

He noted the slightly warmer weather earlier this year around Otago had supported grape production and wine.Mr Clark said Otago had earlier this year seen growth in tourism, improved agricultural sector conditions and increased activity in the manufacturing and services sectors.

"They are likely to have contributed to a sharp fall in unemployment and more spending in the region," he said.

However, more recent indicators suggested the manufacturing and services sectors in Otago could be slowing, raising the possibility of deterioration in labour market conditions in the near future.

"Indeed, while households are still reporting that jobs are plentiful, there is some nervousness about job security in the future," Mr Clark said.

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