Economic analysis for Auckland

November 2009

End of recession?

Auckland city's economic scoreboard

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

Indicator	Jun 08	Sep 08	Dec 08	Mar 09	Jun 09	Sep 09	Time series link

GDP (annual growth)¹	3.45%	1.85%	-0.05%	-1.36%	-2.22%	n/a	See long-term analysis

Unemployment rate (annual average)²	4.6%	5.0%	5.4%	5.6%	6.0%	6.0%	See long-term analysis

Inflation (national rate)³	4.0%	5.1%	3.4%	3.0%	1.9%	1.7%	See long-term analysis

TWI (national quarterly value)³	68.1	63.8	55.1	53.8	60.3	64.3	See long-term analysis

Exports from Auckland airport and seaport (annual growth)²	11.7%	11.6%	10.6%	11.7%	10.1%	5.3%	See long-term analysis

Retail sales growth (annual growth)²	2.3%	1.5%	-0.5%	-1.6%	-2.0%	n/a	See long-term analysis

Business investment intentions* (net %) (quarterly value)⁴	-31.0%	-36.4%	-57.7%	-51.8%	-24.9%	-10.8%	See long-term analysis

Net migration (annual growth)²	-6.9%	-5.6%	0.6%	10.0%	22.7%	26.4%	See long-term analysis

Annual number of residential building consents²	1,832	1,561	1,438	1,149	874	881	See long-term analysis

Annual value of non-residential building consents ($ million)²	$558	$690	$731	$834	$945	$918	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

Third quarter round up

This month's wrap up of the third quarter still shows many negative indicators - but with some clear evidence of light at the end of the recessionary tunnel.

Auckland city's annual GDP decreased by 2.2 per cent in the year to June 2009, representing the third consecutive quarter of negative annual growth. This contrasts to a peak of 3.9 per cent positive growth in the year to March 2008 and is a greater decline than in New Zealand as a whole (-1.8%). At the national level, GDP was up 0.1 per cent in the June quarter (compared to the March 2009 quarter), following five consecutive quarters of contraction.

National unemployment is still rising, although it remained the same for Auckland city in the September quarter. Treasury forecasts expect unemployment to peak around mid-2011 as businesses concentrate on recovering productivity and profitability by cutting costs. However, a faster global recovery could also produce earlier and more significant improvements in employment rates than have previously been expected, as the recent unexpected recovery of employment in Australia suggests. The unemployment rate remained at six per cent in Auckland city in the year to September 2009. This is similar to the level experienced at the end of 2001 and is half a percentage point above that of New Zealand (5.5 per cent¹).

Deteriorating consumer confidence, decreasing asset values and higher unemployment have continued to exert a strong negative influence on retail sales in Auckland city and, in general, in New Zealand. Since December 2008 Auckland city retail sales have experienced a series of negative growth rates (the first in 10 years). However, most recent monthly data at the national level is showing some signs of recovery.

The decline in retail sales has not been even across sectors and has been moderated by sharply falling interest rates and fuel prices, although oil prices have been increasing again in the last quarter. The most affected sectors have been the vehicle-related ones. Conversely, food and recreational food related expenditure (cafes, restaurants and takeaways) has increased. This has been due in part to price increases in food and beverages and to a probable substitution effect among competing alternative sectors inside these categories. After this series of strong declines, a recovery, albeit weak, is expected towards the end of the year.

Growth in exports from Auckland airport and seaport have declined sharply from a previously strong growth trend. The annual growth rate, usually over 10 per cent, has dropped to 5.3 per cent in the last quarter. This is a combined effect of the global recession, the decline of global demand and a strong revaluation of the New Zealand dollar. This appreciation is somewhat paradoxical and related mostly to an improving appetite for risk from overseas investors leading to an increase in financial speculation (carry-trade) that targets high yielding/commodity currencies like the NZ dollar.

On a more positive note, there are also a number of areas showing clear signs of improvement. Net migration to Auckland city, which was negative until the September 2008 quarter, has been growing steadily and strongly since then. In the last quarter it has grown 26.4 per cent on an annual basis, as arrivals have continued to climb and departures have declined. This trend has to be related to the global crisis and, in particular, to the slowdown of the UK and Australian economies. In fact, the contribution of declining departures to net migration has been bigger than the increase in arrivals and a significant share of arrivals are returning kiwis. The increased net migration supports the demand for goods and services including new housing and should in the short to medium term help reverse the declining number of consents for new residential dwellings.

The residential construction sector has interrupted its slowdown, showing a timid sign of recovery as consents for new buildings in Auckland city increased from 874 to 881 in the last quarter in annual terms. However, consent numbers are still almost half those of a year ago (1,561 consents for the year ended September 2008). The non residential sector shows a very different picture. Activity is still very strong, driven by skyrocketing consent values for new non-residential dwellings including a number of government initiated infrastructure projects. However, for the first time in six quarters the annual value of non-residential building consents for the year ending September 2009 is down on the previous quarter, potentially signalling an end to the non-residential mini-boom seem over the last 18 months. Increasing vacancy rates � particularly in the city centre are also likely to temper the recent increase in supply.

Inflation has clearly moderated, with the consumer price index (CPI) dropping to 1.7 per cent in the year to September 2009 from a peak of 5.1 per cent in the same quarter last year. The strong currency is also increasing households' purchasing power. Inflation is still positive, though tradable inflation has been declining sharply (driven by oil) , while non tradable inflation has not shrunk significantly. It is likely however, that early signs of a global recovery and fast increasing commodity prices will soon foster further inflationary pressure.

Although not yet reflected by most economic variables, the global economic sentiment has significantly improved and this has resulted in a sharp increase in business confidence. In the September 2009 quarter sentiment among Auckland city businesses about the general business situation and their investment intentions has continued to improve since the all time low point in the December quarter. Although results are still negative, with a net 10.8 per cent expecting to make less investment in new buildings over the next 12 months than the previous year, that percentage has dropped from 57.7 per cent in the December 2008 quarter. These results signal that businesses are started feeling that the worse of the recession is over.

¹ This is an annual average unemployment rate for the year ended June 2009. This differs to the seasonally adjusted series used by Statistics New Zealand for the national rate. The annual average has also been used in this summary for the national rate to ensure consistency in comparison.

Published November 2009