Regional economies that escaped prolonged lockdowns during the Covid-19 Delta outbreak have performed strongly as they have benefited from high commodity prices.
The latest Westpac Regional Roundup report shows that the emergence of the Delta variant created a performance gap between regions that had fewer restrictions and those that were forced into lockdown.
Westpac industry economist Paul Clark said this meant areas in the upper North Island were doing badly, while those that were doing well had strong relationships. rural.
“Dairy prices are hitting new highs, meat prices are doing well, kiwi prices are doing well, which has really supported rural areas.”
House prices have also contributed to regional activity.
As restrictions were lifted, the upper North Island was expected to quickly catch up with other regions, Clark said.
“That said, regions that have a large rural backbone are well established and we expect them to continue to dominate their metropolitan counterparts in the coming year. Indeed, most producers and farmers can expect to benefit from healthy price points and a positive tailwind provided by a weaker New Zealand dollar. “
Construction of new residential buildings has also increased, which has helped the economy grow, Clark said.
Construction is also expected to be very positive, with high levels of consent issuance expected to boost activity in most areas. Ditto for the housing market, although the impacts here are likely to weaken as price growth is slowing, turning negative in the second half of 2022.
“The potential for larger price corrections is greater in relatively small markets like the Southland and the West Coast. Conversely, smaller declines are possible in places like Canterbury and Otago, where gains to date weren’t that important. “
The positive outlook for regional economies has not come without risk, Clark said.
“The most obvious of these concerns the new Omicron variant and the potential for restrictions on economic activity and border closures once it reaches our shores. Other factors, such as persistent inflation, continued supply chain disruptions and labor shortages, also pose a downside risk. “
Meanwhile, Auckland travelers should give a much needed boost to tourism dependent economies like Otago, he said.
With the reopening of international borders, these regions are expected to rebound strongly next year.