Rural regions will continue to lead the economic recovery, Westpac says

Thursday, 17 June 2021

The Monitor looks at how individual parts of New Zealand's economy have rebounded since the Covid-19 pandemic hit. Video first published in April 2021.

The economic recovery is expected to strengthen further over the year ahead as larger metropolitan areas gradually close the gap with strong performing rural regions, according to Westpac’s latest regional roundup report.

“Regions with a large rural backbone should continue to lead the way, with commodity prices remaining high in coming months,” said Westpac acting chief economist Michael Gordon. “Metropolitan regions though will close the gap.”

Bay of Plenty, Gisborne/Hawke’s Bay, Taranaki/Whanganui-Manawatu and Northland have all benefited from higher or elevated commodity prices even though weather issues and labour shortages have been a drag on production, the report said.

“Regions with a large rural backbone are still well set for the year ahead, with commodity prices expected to remain high in coming months as the global economy continues to expand,” the report said.

Regions with a rural backbone continue to be the strongest performing, Westpac says.

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However the report noted that metropolitan regions were catching up, with economic activity becoming increasingly broad-based.

“A hot construction sector is likely to spell better times ahead for manufacturers in Auckland, the Waikato and Canterbury, who are also likely to be buoyed by stronger economic growth in key export markets,” Gordon said.

That in turn is likely to give the services sector a boost and support employment in these major centres, he said.

Westpac expects residential construction activity to “run hot” over the coming year, with many regions reporting a healthy pipeline of work.

The bank is less upbeat about the outlook for property prices, which after a strong run of record gains across the country are set to cool following changes to the tax treatment of investors.

Gordon said regions that rely on foreign tourism will continue to lag, and will only start recovering properly once the borders are opened to visitors from countries other than Australia.

Given the pace of Covid-19 vaccinations, that is likely to be some time off, Gordon said.

Otago, Southland and the West Coast continue to feel the brunt of the border closures despite the recent opening of the travel bubble with Australia, the report said.