Economic analysis for Auckland

May 2009

Is the worst over?

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	March 09	Time series link

GDP (annual growth)¹	4.26%	3.57%	3.00%	2.15%	n/a	See long-term analysis

Unemployment rate (annual average)²	4.2%	4.6%	5.0%	5.4%	5.6%	See long-term analysis

CPI (national rate)³	3.4%	4.0%	5.1%	3.4%	3.0%	See long-term analysis

TWI (national quarterly value)³	71.6	68.1	63.8	55.1	53.8	See long-term analysis

Exports from Auckland airport and Auckland seaport (annual growth)²	11.5%	11.7%	11.6%	10.6%	n/a	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%	-51.8%	See long-term analysis

Net migration (annual growth)²	-5.9%	-6.9%	-5.6%	0.6%	10.0%	See long-term analysis

Number of residential building consents²	1,864	1,832	1,561	1,438	n/a	See long-term analysis

Annual value of non-residential building consents ($ million)²	$500	$558	$690	$731	n/a	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.

National and regional growth declines - as expected

Latest figures released by Treasury show that New Zealand's recession worsened in the December 2008 quarter, with the economy contracting by 0.9 per cent. This was the fourth consecutive quarter of decline and the largest since December 1991, but was widely expected.

The main drivers were weakness in manufacturing, construction, wholesale trade and tourism, partly offset by strong agriculture and primary food production. The International Monetary Fund expects the New Zealand economy to contract by 2 per cent in 2009 with a weak recovery in 2010 and 2011.

In Auckland, GDP growth almost halved from the year ended March 2008 (4.26 per cent) to the year ended December 2008 (2.15 per cent). However, Auckland's performance continues to be stronger than the national picture, with annual average NZ GDP growth in the year ended December 2008 only just remaining positive at 0.2 per cent.

Unemployment and unemployment benefits are on the rise

Annual average unemployment in Auckland city was up to 5.6 per cent in the March quarter. While a negative upward trend remains, it is not as bad as many were anticipating and represents an increase of only 0.2 percentage points from the December quarter. However, unemployment in Auckland city remains worse than the national situation, where it reached an annual average of 4.5 per cent in the March quarter, up from 4.2 per cent in the December quarter¹.

The number of Aucklanders on unemployment benefits has doubled in the past year as the global recession has hit cities harder than the provinces. Work and Income figures indicate the number of unemployment beneficiaries in the region more than doubled from 6,391 at the end of February last year to 12,879 at the end of March this year. That is 1.4 per cent of the 950,300 people in the region aged 15 to 64 at the last Census, compared with 0.7 per cent a year ago.

The benefit figures show that Maori and Pacific people have been the worst affected. More specifically the results show that in the last year:

The proportion of Maori on the unemployment benefit in Auckland rose 1.5 per cent in the past year to 3.4 per cent.
The rate for Pacific people rose a full percentage point to 2.1 per cent.
The share of those of Asian and other ethnic origin on the benefit rose only half a percentage point to 1.2 per cent
The European rate rose by only 0.4 percentage points to just 0.7 per cent.

The share of working age residents claiming an unemployment benefit was higher in Papakura (3.2 per cent), Manukau (1.8 per cent) and Auckland city (1.4 per cent) than in the rest of the region.

The number of unemployment beneficiaries in the region at the end of the March year (12,879) is much lower than the official estimate of total unemployed in the region (44,700) because many unemployed do not qualify for the unemployment benefit.

Inflation exceeds the official cash rate

Inflation is slowing and reached 3 per cent in the year to March 2009 compared to 5.1 per cent in the year to September 2008. Therefore inflation is now higher than the Official Cash Rate, which was set to 2.5 per cent on 30 April by the Reserve Bank. This means that the Reserve Bank, as many other central banks around the world, is using real negative interest rates to stimulate the economy.

However, the average inflation data hides differences in inflation between goods of different sorts. The overall drop in inflation has been largely driven by falls in the prices of imported commodities' (such as oil) from 6.3 per cent in the year to September 2008 to 1.7 per cent in the year to March 2009. Inflation in the prices of non tradable goods and services has remained steadier and currently sits at 3.8 per cent.

Food prices have dodged the general price falls noticeable throughout the economy. Fruit has increased by 6.9 per cent in the last quarter, fish and other sea foods has increased by 2.7 per cent, while bread and cereals have increased by 2.6 per cent. These increases are puzzling in the context of rising unemployment and stagnating wage growth.

Tourism shrinking

Despite the sharp devaluation of the NZ dollar (see the trade weighted index) tourists visiting New Zealand have dropped over the March quarter by a huge 7.4 per cent on a year earlier. China was the only market providing more tourists than in March 2008 - up 9.3 per cent.

Arrivals from the United Kingdom (down 26 per cent on a year earlier), the US (down 20 per cent), and South Korea (down 19 per cent) all fell sharply on a year earlier. Further declines in arrival numbers are expected over the next year.

In Auckland, the Commercial Accommodation Monitor shows that this trend is being mirrored in our region with commercial guest nights for February down 7.7 per cent on February last year.

Migration booming as fewer Kiwis leave and more return home

Net migration to Auckland has been growing at a stunning 10 per cent in the last three months (especially since February 2009) as permanent and long-term arrivals (immigrants planning to stay for more than a year and returning expatriates who have been away for more than a year) have well exceeded departures.

Statistics New Zealand reported that, seasonally adjusted, in March the net positive inflow was 1720 people, well above the average monthly gain of 490 over the previous 12 months and following a net gain of 1600 in February. These results for February and March are the strongest net inflows experienced since mid-2003.

This growth in net migration appears to reflect the rapid worsening of the economic climate abroad (especially in the UK and Australia) as it is mainly the result of a drop in people leaving (5800 last month compared with an average 6900 over the previous 12 months), rather than an increase in people coming into New Zealand - which at 7500 in March, was only 110 higher than average.

If the trend continues, the resulting population increase could provide some relief especially to sectors such as retail spending and housing construction.

Up and downs in the property sector

The increase in net migration could explain part of the improvement experienced in the number of residential house sales. However, prices have been decreasing since June 2008 and in March 2009 were down 10.6 per cent on a yearly basis.

The annual number of residential building consents issued for new buildings in Auckland city has fallen further in the March 2009 quarter. In the year to March 2009, the annual number dropped by 38 per cent to reach 1149. This is below the previous quarter (1438) and well below earlier peaks of 5622 consents in 2004. Conversely, the total annual value of non-residential building consents has grown by 67 per cent in the year to March 2009 to reach $834 million, continuing a trend of increasing growth over the last four quarters.

Double-digit vacancy rates are being forecast for Auckland CBD's offices in a recent report by Colliers International. Auckland city fringe vacancies have risen from 5.7 per cent last year to 6.3 per cent. More alarmingly, the North Shore's overall office vacancy was as low as the city fringe at the end of 2007 but has since shot up to 10.6 per cent, the highest since surveys began in 1995.

1 The Statistics New Zealand seasonally adjusted figure for the March quarter was 5.0 per cent.

Published May 2009