Still too-high inflation and considerably higher interest rates are combining to constrain economic activity across New Zealand, according to Infometrics’ latest monitoring of regional economies.

Infometrics’ December 2023 Quarterly Economic Monitor suggests that economic activity in the final quarter of 2023 was down 0.2%pa from the end of 2022, dragging year-end growth down to just 0.7%pa.

“Economic pressures are mounting across New Zealand, with higher interest rates restricting spending activity across the economy,” says Infometrics Chief Executive and Principal Economist Brad Olsen. “Household spending growth is below the rate of inflation, indicating lower sales volumes, and with population growth running at a nearly 80-year high, spending per person has contracted considerably.”

“Marketview card spending data shows a sustained pullback in the pace of spending,” says Mr Olsen. “The restraint on spending was made clear in recently released Retail Trade statistics from Stats NZ, which showed price-adjusted spending declines for all but one industry.”

“Although inflation is still too high, progress in bringing it under control is clearly being made by the Reserve Bank, with the headline inflation rate declining. The economy is clearly weaker too, which will continue to dampen demand for goods and services and limit pricing pressures as businesses seek to preserve sales activity and cashflow – things that are easier to lose if prices keep rising,” says Mr Olsen.

“The primary sector also remains under pressure, which will hit regional economies over 2024. Although the estimated dairy pay-out in the current season continues to improve, Infometrics estimates the aggregate pay-out will still be $2.6b lower than two seasons ago,” says Mr Olsen. “Fruit and vegetable harvests look set to improve in 2024, but sheep and beef farmers are struggling. Lamb prices are at a seven-year low, amid much higher costs than in prior years.”

Regionally, future construction intentions have fallen considerably. “Total residential consents across New Zealand are down 27%pa over the 2023 calendar year. They have fallen a massive 56%pa in the Wellington region and are down 33%pa in Auckland,” says Mr Olsen. “However, not everywhere has lower consent numbers, with Nelson, Hawke’s Bay, Gisborne, and West Coast regions all recording annual gains in consents over 2023.”

A less stretched labour market is making it harder to find jobs, even as population growth driven by high net migration adds more people searching for work. “Job ads are down 24%pa, and are now sitting 13% below pre-pandemic levels, as businesses limit their hiring in the face of weaker economic activity,” says Mr Olsen. “Although regional jobs growth has been solid, employment hasn’t kept pace with population growth, and we expect the unemployment rate to rise further throughout 2024.”

The latest Infometrics Quarterly Economic Monitor also includes an expanded range of socioeconomic indicators to provide a wider view of local trends, with rent data showing the migration pressures on the housing market, for example. “We’re excited to be able to expand the range of data we provide to clients across the country, so they can make better informed decisions about their local areas, backed up by easily accessible and understood evidence and analysis,” says Mr Olsen.

ENDS

Note:

The Infometrics Quarterly Economic Monitor is a series of reports about local economies, rather than one comprehensive report. This media release provides a high-level overview of trends and changes to regional economies.

More details about the Quarterly Economic Monitor can be found here: https://www.infometrics.co.nz/product/quarterly-economic-monitor