Economic analysis for Auckland

April 2009

New year, same story

The latest round of indicators available for Auckland city paints a similar picture to that seen in December, continuing to reflect difficult economic times.

This month we update data available since the March 2009, relating to export, retail and construction activity over the early part of this year.

Auckland city's economic scoreboard

All values for Auckland city unless specified Year ended (unless specified)

Indicator	March 08	June 08	September 08	December 08	January 09	Time series link

GDP (annual growth)¹	3.99%	3.41%	2.45%	n/a	n/a	See long-term analysis

Unemployment rate (annual average)²	4.2%	4.6%	5.0%	5.4%	n/a	See long-term analysis

CPI (national rate)³	3.4%	4.0%	5.1%	3.4%	n/a	See long-term analysis

TWI (national quarterly value)³	71.6	68.1	63.8	55.1	54.9	See long-term analysis

Exports from Auckland airport and Auckland seaport (annual growth)²	11.5%	11.7%	11.6%	10.6%	10.7%	See long-term analysis

Retail sales growth (annual growth)²	3.6%	2.3%	1.5%	-0.5%	n/a	See long-term analysis

Business investment intentions (net percentage) (quarterly value)⁴	-23.5%	-31.0%	-36.4%	-57.7%	n/a	See long-term analysis

Net migration (annual growth)²	-5.9%	-6.9%	-5.6%	0.6%	n/a	See long-term analysis

Number of residential building consents²	1,864	1.832	1.561	1,438	1,280	See long-term analysis

Value of non-residential building consents ($ million)²	$500	$558	$690	$731	$732	See long-term analysis

1 Infometrics 2 Statistics New Zealand 3 Reserve Bank of New Zealand 4 Quarterly Survey of Business Opinion, NZIER *Net percentage is calculated by subtracting the percentage of business saying the business situation has deteriorated from those saying improved in the last three months.

New Zealand's dollar weakens but no boost for exporters

The New Zealand dollar has weakened further against our main trading partners, since its peak of 73.0 in February 2007.

The trade weighted index fell to 55.1 in December 2008, 54.9 in January 2009 and 52.3 in February 2009.

Currency depreciation has occurred across the board, with the largest declines relative to the US dollar and the Yen. While this drop has cushioned exporters from the overall decrease in global demand for goods, annual export growth for Auckland was 10.7 per cent in January, almost the same as December and below that experienced over most of the last year.

Easing of monetary policy nears an end

On 12 March the Reserve Bank of New Zealand (RBNZ) announced a reduction in the official cash rate of 0.5 percentage points, taking the rate down to 3 per cent.

This was smaller than the markets were expecting, with many predicting a 1 percentage point cut.

This signals that the recent easing of monetary policy is slowing and probably nearing its end. The response to this smaller than expected fall, was a rise of the NZ dollar against most major currencies.

There is wide spread consensus that the OCR will now bottom out at 2.5 per cent (many previously expecting, and still wanting a 2 per cent rate), with two more 0.25 percentage point cuts at the next two announcements.

Reserve Bank Governor, Dr Alan Bollard sighted a need to maintain a higher return on the New Zealand currency to entice investment in New Zealand. Furthermore, he is conscious that lower interest rates are particularly hurtful for savers.

Domestic demand is not much better

Domestically, consumption also continues to decline, putting a greater squeeze on retailers.

Annual retail sales actually dropped in the year to December 2008 (since December 2007) - the first time this has happened in the last decade. This decrease has been driven by a drop in vehicle sales, with smaller declines also occurring in the clothing and soft goods category. ¹

Conversely, significant growth has occurred in automotive vehicle services (including fuel) and food retailing.

While some of this growth is explained by price increases in essential areas of expenditure, it may also reflect changing behaviours whereby higher order goods and services (for example, restaurant meals) are replaced by lower goods and services (for example, takeaway meals and eating at home).

Overall however, declines in consumer spending are expected to continue into 2010.

Construction sector continues to struggle

Despite lowering mortgage rates and increased housing affordability, the residential construction sector is still waiting for the impacts to flow through.

The annual number of residential building consents has fallen further to 1,280 in the year to January 2009. These have gradually been declining over the last year and are well below peaks of nearly 6,000 in 2004. Growth has also ceased in the annual value of non-residential building consents, which, after strong growth through last year, has remained the same in the year to January 2009 as in the year to December 2008.

According to forecasts put out by Infometrics Ltd, the construction sector slump will impact the Auckland region more than the rest of New Zealand. Although the rate of population growth in Auckland has dipped in the last year, the rate remains faster than the rest of New Zealand. This has put pressure on the residential dwelling stock in Auckland. Dwelling vacancy rates are down and occupancy rates are up. This is expected to worsen over the next couple of years due to low domestic demand in other areas of Auckland's economy and investors wary of the construction sector collapse. This will make it difficult for the residential construction sector to recover. As a result, the Auckland region is likely to face a housing shortage over the next 12 to 18 months.

In the non-residential construction sector, it is anticipated that planned government infrastructure expenditure on the likes of educational buildings and roading projects will help maintain activity with a high share of proposed projects located in the Auckland region.

1 This refers to fabrics and other soft goods such as blankets, curtains and textiles.

Published March 2009