Regional economies saw a sharp fall in activity as Delta hit, but strong fundamentals have enabled the New Zealand economy to maintain its momentum with strong exports, higher building activity, and more Kiwis in work. Infometrics’ September 2021 Quarterly Economic Monitor shows economic activity dipped 3.7%pa in the quarter, according to provisional estimates, as Delta temporarily brought parts of the economy to a standstill again.
“The Delta lockdown resulted in a temporary setback to the economic recovery across the regions in the September 2021 quarter,” says Infometrics Principal Economist and Director Brad Olsen. “However, economic momentum has returned as most of New Zealand has moved down Alert Levels, with people buying and backing local again.”
Regional activity has been mixed, with a range of factors introducing even more variability in economic outcomes for local economies. “The Top of the South, the eastern North Island, and Northland all saw robust economic activity in the quarter despite heightened restrictions, with primary sector activity and higher employment trends bolstering outcomes. Unsurprisingly, tourism hotspots and urban centres suffered a larger economic hit as travel remained restricted and working from home trends intensified further,” says Mr Olsen.
Employment remains solid, with total filled jobs increasing by 3%pa in the September 2021 quarter, and wage inflation is also starting to pick up. “Labour costs increased 2.4%pa in September, as firms find it increasingly difficult to not only get new staff but hang on to the staff they currently have,” says Mr Olsen. “Unemployment has fallen to a record-equalling low and job ad numbers are high. But even with beneficiary numbers trending downwards again, there’s still a lot of work needed to get more New Zealanders into sustainable employment, with over 190,000 people still on Jobseeker Support.”
Inflationary pressures continue to build, with labour market tightness and sustained demand for goods and services pushing up prices. International shipping costs are also 10 times higher than pre-pandemic levels, making it difficult to source the materials to keep the economy moving at its current pace. “Inflation increased to 4.9%pa in the September quarter, putting more of a squeeze on household budgets. Inflationary pressures are intense, particularly in the provincial North Island, and we expect to see inflation remain higher for longer.”
Housing affordability continues to worsen considerably, with prices up by 30%pa in the September quarter. “The housing market remains berserk, and demand in regional markets has been boosted by a greater focus on flexible working. Building consents have surged 25% higher over the last year to help combat the undersupply of housing. However, resolving the housing crisis and achieving any material improvement in affordability is still years away, in a blow to many young New Zealanders’ aspirations.”
“Looking forward, regional economies remain well positioned to recover well from the Delta lockdown, with more spending and activity set to be unlocked in 2022 as vaccination rates lift and government strategies evolve. However, falling consumer confidence and health system vulnerabilities mean some caution is needed about the economic outlook for regions in 2022. COVID-19 continues to fuel uncertainty, and summer spending could be a key indicator for how New Zealand might go in the new year.”
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