Examining the local and industry effects of the first year of COVID-19

Recent Infometrics data provides the first comprehensive analysis of the impact of COVID-19 on different industries and local areas across New Zealand. Our regional and sector data, which sits behind our Regional Economic Profiles and Sector Profiles, was updated in early February 2022 with estimates for the year ending March 2021. Our analysis shows a considerable shock to parts of the New Zealand economy, and the weakest period of employment activity since the Global Financial Crisis (GFC).

Key trends driven by primary exports, an urban slowdown, and tourism collapse

Three key trends emerge from COVID-19’s impact around New Zealand. These trends are the same Infometrics has noted throughout the pandemic, but the evidence to support them is now even stronger. The trends are:

  • Economies with a strong primary sector focus performed strongly across New Zealand, as commodity prices rose and food needs across the globe were sustained and, in some cases, grew strongly.
  • Urban centres showed a trend of lower economic activity as more people worked from home.
  • Economies with a greater focus on international tourism felt the hardest hits, with the lack of nearly 4 million international travellers not being made up by travelling Kiwis.

Government and construction grow as tourism shrinks

Infometrics analysis shows that 10 of 19 high-level industries showed a fall in average annual employment over the March 2021 year, compared to the March 2020 year. That number of declining industries was the highest since the GFC, when 15 industries showed declines over the year to March 2010. However, our figures show employment across the entire economy actually rose a marginal 0.1%, as other sectors responded to pandemic-related events and grew strongly.

The first-year impact of COVID-19 on the New Zealand economy were incredibly uneven. Industries closely tied to international tourism activity were the heaviest hit. Accommodation and food services had the largest impact, with average annual employment falling 5.2%pa with 9,100 fewer workers (see Chart 1).

Transport, postal, and warehousing had the second largest blow, declining 5.1%pa with 5,500 fewer workers. The transport decline was focused on air transport, with Air New Zealand employment levels falling as international crew were laid off.

There was also a strong decline in administrative and support services, down 3.4%pa, or 4,600 fewer workers, as travel agencies saw business activity dry up.

However, higher levels of demand across the infrastructure space boosted electricity, gas, water and waste services employment (a small industry to start with), with a 5.1% boost adding just over 900 roles. More consequential to the economy was the substantial increase in public sector, construction, and health sector employment.

As the pandemic hit, the public sector expanded to resource Managed Isolation and Quarantine (MIQ), contact tracing, more employment brokers and social support with higher levels of benefit need, and a range of other factors. Public sector employment rose 4.7%, adding 6,300 jobs.

Substantial increases in building activity saw the construction sector add the largest number of jobs in absolute terms in the March 2021 year. Average annual employment in the industry rose 3.7%, adding 9,300 jobs.

Unsurprising for a pandemic, the health sector also expanded, as hospital capacity and community care levels were boosted as much as possible. The healthcare sector grew 2.6%, adding 6,600 roles.

An uneven regional impact

How these affected industries flowed through to regional economies was felt unevenly across New Zealand. The concentrations of internationally focused tourism in some areas drove steeps falls in employment, even as export drivers supported strong growth in other centres.  

Tourism areas, especially in the South Island, hardest hit

The Queenstown-Lakes economy was the hardest hit over the year to March 2021, with an 8.5%pa fall in average annual employment – a loss of around 2,700 roles (see Chart 2). Mackenzie District was next, falling 6.8% (195 jobs), followed by Kaikōura (-5.3%, 100 jobs), Westland (-3.9%, 191 jobs), and Waitomo (-3.4%, 177 jobs). Accommodation and food services, transport, and administrative and support services drove the decline in these areas.

Employment activity was hit harder across a number of South Island areas, with the domestic tourism boost seen across New Zealand not enough to make up for the loss of international visitors. Domestic travellers had a greater focus on drive-based trips, bolstering North Island areas more, as fly-based locations in the South Island saw less support.

A fall in metro economies as WFH shifts focus

Urban centres saw a lacklustre performance over the March 2021 year, with most larger cities seeing employment falls. Christchurch (-1.8%), Dunedin (-1.5%), Auckland (-0.2%), and Wellington (-0.02%) all fall into this group. The substantial shift towards work from home (WFH) throughout the pandemic reduced the level of hiring in some major centres. More importantly, the reduction in office workers in cities hammered supplying industries such as hospitality that cater for office workers normally.

Primary sector maintains economic momentum

Areas of New Zealand without the same focus on international tourism, and with strong primary sector foundations, performed the best throughout the first year of the pandemic. A redirection of domestic tourism funds also supported some areas.

Stratford District saw the strongest employment growth in the March 2021 year, as education and training, primary sector and related manufacturing, and the health sector all grew.

Selwyn was next, up 3.7%pa, with primary sector foundations and the fastest population growth across the country adding to economic demand. Waikato District (3.5%), Hastings (3.3%), and Western Bay of Plenty (3.0%) rounded out the top five. Although primary sector employment didn’t necessarily rise considerably in a number of areas, spending on the primary sector remained high and supported the economic base of many areas, enabling stronger employment outcomes in downstream sectors as cashflow and demand were sustained.

Two other factors bolstered local economies: the rise of WFH and strong domestic tourism for some areas. The rise in WFH enabled a larger number of workers to move further out from major metro centres, which shifted where these workers’ economic demand was focused. Areas like the Kāpiti Coast, Waimakariri, Waipa, and Kaipara Districts all gained from the relocation of economic focus regionally.

Domestic tourism also rose considerably in some areas, with the Wairarapa, Whakatane, Whanganui, and others all being supported by more people driving to local tourism destinations.

A recovery set for 2022

Our next comprehensive update on the New Zealand economy is scheduled to be released at the end of January 2023, for the March 2022 year. Partial indicators so far show a considerable bounce back in economic activity across New Zealand – at least compared to lockdown periods. The labour market has strengthened significantly since the first year of the pandemic, and solid job growth is expected across New Zealand.

However, the initial downturn in employment, and the likely redeployment of resources (both labour and capital) across the country, are important to consider as New Zealand goes forward. More support may be needed in future to redetermine the economic focus of some local areas, and industries are likely to continue transforming operations as the economy and demand shifts too. Getting into the details of how the economy evolves will remain key for decision makers to best support New Zealand’s long-term response to the COVID-19 pandemic.

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