The latest Infometrics Quarterly Economic Monitor suggests that regional economies may be about to turn a corner, with slight improvements in some indicators showing that renewed strength may be on the cards in 2020. However, the risks associated with the COVID-19 outbreak threatens to derail any rebound, with expectations for softer export earnings in the first half of 2020.
“Over the 12 months to December 2019, a few indicators have showed renewed promise, indicating a change of fortunes and faster economic growth may be coming” says Infometrics Senior Economist Brad Olsen. “Faster growth in traffic volumes, house prices, and tourism spending all point towards a bit more heat coming into regional economies towards the end of 2019”.
“However, travel restrictions and difficulty getting New Zealand’s exports into China, as a result of the COVID-19 outbreak, look set to pull the rug out from this potential revival of economic growth. Tourism activity is likely to drop lower, and New Zealand’s larger trading footprint with China means our primary sector exports are at greater risk, with dairy, meat, forestry, and horticultural exports all experiencing issues.”
“Supply chain disruptions are also becoming apparent, and there is a risk that, if the outbreak persists, consumer and business confidence may take a hit as a contagion effect takes hold and reduces economic activity. With COVID-19 cases still rising, the end of the outbreak and the economic impact on New Zealand, remain highly uncertain, but the first half of 2020 is likely to see markedly lower economic growth.
The east coast of the North Island and Waikato led regional economic growth over the 12 months to December 2019, although Tasman Region continued to see the fastest regional economic growth. Higher export activity in the North Island supported this growth, with tourism earnings rising. Higher meat and dairy prices over the December 2019 year also played a part, with an additional $1.7b in dairy pay-out expected across the country in the 2019/20 season.
House prices have seen renewed strength towards the end of 2019, and this trend is likely to continue in 2020 as low interest rates and a continued housing undersupply keeps the pressure on the housing market. However, higher construction activity across the country is also supporting regional economies and is starting to address the undersupply in key markets. Expectations are for slower house price growth after 2020 and a reduction in construction levels over the medium term, as the housing shortage is addressed by current levels of building activity.
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