Southern economy likely to stay strong
THE economies of Otago and Southland are expected to lose some traction this year, but nevertheless remain within the strongest performing provinces in the country.
Both have experienced solid growth in recent quarterly reports, but an easing in rapid population growth in both provinces will likely have knockon effects for housing and construction.
In Westpac’s latest 12month regional outlook report, chief economist Dominick Stephens said while economic activity in the southern areas of both the North and South Islands remained ‘‘very strong’’, in some places ‘‘that momentum is starting to flag’’.
‘‘Some regions are currently experiencing economic booms.
‘‘However, when population growth and house price inflation inevitably slow, these overheating regions are likely to cool,’’ Mr Stephens said.
Earlier this week, in a separate ASB survey, Otago and Southland virtually swapped places on rankings of 16 regions. Otago moved from seventh place to second, and Southland dropped from first to seventh.
For the quarter to December, Otago had registered high employment levels and strong house price gains, but Southland was toppled from first as a similar run of earlier data was not repeated.
Otago Chamber of Commerce chief executive Dougal McGowan said when contacted he hoped last week’s announcement by Air New Zealand of 750,000 regional airfares under $50 would boost the flagging number of domestic visitors.
‘‘There’s been some growth in the domestic market, given it was negative for almost eight months,’’ he said.
Mr McGowan believes the Westpac data underestimated the positive effects from events in Dunedin, including graduations, visits by firstyear students’ families, conferences and stadium events.
He acknowledged many of those visits would have been captured in the tourist bed nights data, but he hoped for more growth and then ‘‘getting those visitors out into the regions’’.
Another chief concern for Otago was residential house consenting, which was flat in the southern regions, compared with other provinces.
‘‘This issue needs some focus
❛ GisborneHawke’s
Bay, Otago and Southland are still among the strongestperforming regions in the country, despite losing momentum
Westpac chief economist Dominick Stephens
because its a continuing trend for the whole of Otago and not meeting needs,’’ despite stronger data out of Queenstown Lakes and Central Otago, he said.
Mr Stephens described New Zealand economy as one of two halves, with the southern portions of each island having been ‘‘absolutely fizzing’’, but Canterbury and Auckland much slower.
‘‘GisborneHawke’s Bay, Otago and Southland are still among the strongestperforming regions in the country, despite losing momentum,’’ Mr
Stephens said.
The 2019 outlook for most regions was broadly positive, mainly due to a large increase in government transfers to low and middleincome families and spending, which would be felt across the whole country, he said.
Mr Stephens issued a caution for Otago, saying while it had been ‘‘fizzing in recent years’’, that was not likely to last forever.
‘‘For now, activity in the region will continue to be buoyed by rising house prices, strong construction activity, tourism, and the success of its agricultural sector,’’ he said.
However, some of the current boom was due to rapid population growth, which is unlikely to last, and he expected to see a moderation in construction activity.
By the early 2020s, Mr Stephens expects Otago house prices to be declining, which would affect consumer spending.
He said Southland, too, had been an ‘‘outperforming region’’ in recent years, but during 2019, he expected to see the local economy lose some momentum, although still among the strongestperforming regions.
‘‘The main reasons for a loss of momentum are expected to be slowing house price growth and weaker construction activity as a result of slower population growth.
However, activity should continue to be buoyed by ongoing success in the region’s dairy and meat producing industries.
‘‘The regional boom in many parts of New Zealand has been driven by two forces.
‘‘The first is success in export industries like agriculture, and that can be sustained. But the second driver is not sustainable: population growth, construction, and rising house prices,’’ Mr Stephens said.
He also ran the rule over tourism in every province, saying Otago was New Zealand’s premier tourist destination, despite reporting fewer guest nights than Auckland.
‘‘It’s especially popular with foreign tourists, which make up about 60% of guest nights,’’ he said.
However, guest night growth had slowed in recent years and domestic tourism, in particular, had come under pressure.
‘‘Despite additional capacity coming on stream, it’s very likely that accommodation constraints in the QueenstownLakes and Central Otago districts at peak times will have put locals off from visiting the region,’’ Mr Stephens said.
While the number of tourists visiting Southland was considerably fewer than Otago, Mr Stephens said the region was popular with foreign tourists, who also made up about 60% of guest nights, and it was likely it benefited from those visiting Otago.
While the annualised growth in foreign arrivals had tracked lower, they are still ‘‘growing at a fair clip’’ compared with other regions.
‘‘To a large extent this reflects the region’s wellearned reputation as a worldclass tourism destination,’’ Mr Stephens said.
By contrast, domestic guest nights growth seemed to reflect well documented capacity issues in the area, which was exacerbated by the growth in international guest nights, resulting in higher prices, he said.
For other regions, the economic gap appeared to be closing and ‘‘erstwhile laggards’’ like Northland, Waikato, and NelsonMarlboroughWest Coast had picked up in recent quarters.
Mr Stephens said while Auckland had also shown a few signs of picking up, falling house prices remained a constraining force.