Economic analysis for Auckland

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July 2010

GDP turns!

Auckland city's economic scoreboard

Auckland city's economy has shown mixed results in the last quarter, reflecting a continuation of the stuttering recovery from the 2008-09 financial crisis.

Overall, Auckland's GDP grew 0.93 per cent in the year to March 2010, following five consecutive quarters of annual decline. Annual GDP has risen gradually over the last three quarters for Auckland city, but recorded positive annual growth for the first time since 2008 in the March 2010 quarter. This positive result was driven by the property and business services sector, historically the city's main contributor to GDP growth. But mixed results are reflected in Auckland city's business investment intentions where the net percentage of businesses expecting to invest more in buildings over the next 12 months is still only just positive (0.7 per cent) and has decreased slightly since the March 2010 quarter (4.2 per cent).

The trade-weighted index has increased to 67.2 in July 2010 as the New Zealand dollar gains strength. However, this is inconsistent with a weaker economic outlook for New Zealand. The New Zealand dollar has risen on the back of strength in the Australian dollar in conjunction with positive data in foreign markets increasing the appetite for the New Zealand dollar. Although, signals for more modest than expected OCR increases may weaken this increase.

On the positive side for consumers, the Consumers Price Index (CPI) of inflation dropped slightly to 1.8 per cent in the year to June 2010. Petrol, international air transport, and cigarettes and tobacco had the largest upward contributions to inflation, with the largest downward contributions from lower prices for audio-visual and computing equipment.

For the first time since late 2008, annual net migration to Auckland decreased in the June 2010 quarter. This was driven by both a drop in the number of arrivals and an increase in the number of departures. Arrivals have also dropped in the rest of New Zealand, but a greater drop in the number of departures has meant net migration, while slowing has remained positive at the national level. Migrants from the UK and Australia accounted for the largest share of arrivals in New Zealand, however, recovering demand for labour in Australia has increased the net loss across the Tasman.

Decreases in net migration are likely to further reduce demand for building consents in Auckland city. In the year to June 2010, the number of consents fell further to 839 consents for new residential dwellings, down 4.0 per cent from a year earlier. This was due primarily to a drop in the number of consents for new apartment dwellings.

The annual value of consents for non-residential dwellings has also decreased again, amounting to a total drop of almost one-quarter (24%) in the last six months. Previous rapid growth in the value of consents was driven by a number of large consents for developments that are now all but completed, including those for Eden Park, Mt Eden Prison and the new Telecom buildings.

The current situation for exporters also remains gloomy with the annual value of exports through Auckland's sea and air ports decreasing by 9.0 per cent in June 2010. Although annual growth remains negative, the value of exports has increased slightly by 2.6 per cent since the year to April 2010. However, a recovery for exports is likely to be hindered by a high New Zealand dollar.

Published August 2010