Economic analysis for Auckland
November 2009 |
September 2009 |
July 2009 |
May 2009 |
April 2009 |
March 2009 |
December 2008 |
July 2008 |
March 2008 |
December 2007
July 2008
Auckland city's economic scoreboard
All values for Auckland city unless specified
Year ended (unless
specified) |
|
| Indicator |
June 07 |
|
September 07 |
|
December 07 |
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March 08 |
|
June 08 |
|
Time series link |
|
| GDP (annual growth)1 |
1.47% |
|
1.23% |
|
1.17% |
|
1.09% |
|
n/a |
|
See long-term analysis |
|
| Unemployment rate (annual average)2 |
3.9% |
|
4.2% |
|
4.2% |
|
4.2% |
|
4.6% |
|
See long-term analysis |
|
| CPI (national rate)3 |
2% |
|
1.8% |
|
3.2% |
|
3.4% |
|
4% |
|
See long-term analysis |
|
| TWI (national quarterly value)3 |
73.6 |
|
68.3 |
|
71.6 |
|
71.6 |
|
68.1 |
|
See long-term analysis |
|
Exports from Auckland airport
and Auckland seaport (annual growth)2 |
10.8% |
|
10.8% |
|
11.6% |
|
11.9% |
|
11.9% |
|
See long-term analysis |
|
| Retail sales growth (yoy)2 |
5.8% |
|
3.3% |
|
4.6% |
|
0.9% |
|
0.4% |
|
See long-term analysis |
|
Business confidence (net percentage)
(quarterly value)4 |
-32.4% |
|
-24.9% |
|
-22.6% |
|
-67.1% |
|
-63.3% |
|
See long-term analysis |
|
| Net migration (annual growth)2 |
1.0% |
|
-4.9% |
|
-13.3% |
|
-5.9% |
|
-6.9% |
|
See long-term analysis |
|
| Number of residential building consents2 |
1,903 |
|
1,981 |
|
1,747 |
|
1,864 |
|
1.815 |
|
See long-term analysis |
|
Value of non-residential building consents
($ million)2 |
$548 |
|
$504 |
|
$488 |
|
$500 |
|
$546 |
|
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. |
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Thunderstorms persist in the
Auckland economy
Auckland city has continued to
weather more than just weekly thunder storms in the quarter to June, as the
economy weakens in the face of a tough international environment. Any thoughts
of an economic recovery have been cast aside with the further collapse of
finance companies in the United States. Whispers of stagflation continue with
fragile GDP growth and high inflation evident in the economy.
Auckland city experienced March GDP growth of just 1.1 per cent (in the year
to March) - which has decreased in each of the last
four quarters. In fact, March GDP growth was at its lowest rate since 1999. It
may be too early to think of a repeat of the early nineties at this stage, but
the forecast is generally more grey than blue.
Meanwhile, national inflation has
remained high, reaching 4.0 per cent in the year to June 2008. The latest
Reserve Bank of New Zealand forecast has inflation peaking at around 5 per cent
in the September quarter. These price increases have weighed heavily on the
wallets of consumers, with the basic commodities of petrol and food accounting
for the bulk of inflation.
On the bright side, more people
are opting for public transport, reducing traffic flows across the city. Such
rapidly increasing fuel costs have meant the introduction of transport into the
emissions trading scheme (ETS) has been delayed as the market has largely
fulfilled the role of the ETS.
Auckland city's annual average
unemployment rate has also continued to climb, reaching 4.6 per cent in the year
to June 2008. Unemployment has consistently risen since a low of 3.1 per cent in
the year to March 2006. However, the labour market is still considered very
tight when compared to the 1990s (when unemployment peaked in Auckland city at
12.9 per cent in 1992).
As the gloomy combination of high
costs and low consumer spending wears on, businesses remain firmly on the back
foot (meaning a plethora of early sales for willing consumers!). Business
confidence in Auckland city is at its lowest level for 10 years, with a net 63.3
per cent of business in June 2008 finding the general business situation had
deteriorated from the previous three months.
The economic downturn has meant
growth in retail sales continued to head south in the year to June 2008,
reaching just 2.3 per cent. With consumer wallets firmly closed, retail has
stumbled towards growth of 0.4 per cent between the June 2007 and 2008 quarters.
Negative consumer sentiment has also affected a decline in residential building
consents (from the previous year).
Lowered numbers of consents are also a result of less demand for new houses due
to higher interest rates and affordability issues.
The large number of Aucklanders
setting sail for sunny Australian shores continues to be a drain on the economy.
Although there are more foreigners arriving in Auckland city, an even greater
number of people are leaving Auckland city to live overseas.
Auckland city's economic lifeboat
has come in the form of the export industry. The value of exports through
Auckland International Airport and the Ports of Auckland, is up almost 12 per
cent on the previous year to June. High world food prices and a declining
exchange rate (led by a strengthening $US) are making our exports more
attractive internationally.
Further positive news comes from
the value of non-residential building consents, which have risen in the last few
quarters. High demand in the office sector for new high quality office buildings
has contributed to this growth, while developments for the Rugby World Cup
provide a bright outlook in the coming years.
Focus on the official cash rate
From June, the RBNZ has
overlooked inflation fears in favour of resuscitating a lacklustre economy by
cutting the OCR by 0.25bp and 0.50bp in each of the last two announcements. The
OCR currently sits at 7.50 per cent. With the international financial system looking
increasingly frail, many economists are expecting an aggressive set of OCR cuts
into the future, potentially lowering the rate to 6.75 per cent (or lower) by the end of
the year. While this move will increase aggregate demand in the medium term, its
short-term effects are less certain.
The credit crunch
From early 2007, the official cash rate (OCR)
underwent a series of rises (see Figure 1), closely mimicked by rises in the
floating mortgage rate. The exception to this came between January and June
2008, when the OCR remained constant at 8.25 per cent while the floating rate continued
to rise by 0.39 per cent. This reflects the global credit crisis, through which
international lending costs have increased dramatically - an important reminder
that domestic interest rates can be significantly influenced by the
international credit environment. The New Zealand financial system borrows about
a third of all funds from overseas. With the recent collapse of Lehman Brothers
Ltd and the fire sale of Merrill Lynch - two companies with over 200 years of
experience and both survivors of the 1929 Great Depression - we can expect
further upward pressure on domestic interest rates, keeping them high despite
further OCR cuts.
The credit crunch is further
evidenced by the fixed interest rate. The fixed rate has continued to rise
(despite perceived future OCR cuts), indicating banks' expectations that
international lending costs will remain high in the immediate future. These
concerns will only be exacerbated, as the international financial system
stumbles along in a wake of bad investments in the American subprime housing
market.
Figure 1: The OCR and average interest rates from
New Zealand's main banks
 |
| Source: Reserve Bank of New Zealand. |
 |
There will also be a lag between
OCR cuts and their effect on consumers. Figure 2 shows that the share of clients
opting for a fixed interest rate has steadily increased from December 2004 (75
per cent
of all clients) to June 2008 (87 per cent). Thus, a larger proportion of individuals
must wait for their loans to mature before they are able to take advantage of
lower interest rates.
Figure 2: Proportion of
individuals with fixed and floating loans
 |
| Source: Reserve Bank of New Zealand. |
|
Focus on the housing market
House prices
Double-digit house price
inflation seen only a year ago in Auckland city has slowed considerably, to zero
per cent in the year to August 2008. Annual house price growth has also dropped
in the Auckland metropolitan area as a whole and throughout New Zealand from a
peak in the year to January 2008. These are the lowest levels of house price
growth for Auckland city seen since the late 1990s when they reached levels as
low as -3.4 per cent. However, Auckland city house prices continue to remain
above those in the region and New Zealand as a whole.
Figure 3: Annual percentage change in house prices
 |
| Source: REINZ Housing Facts. |
|
Sales decline, time to sell
increases
The monthly average number of
sales in Auckland city has been decreasing since the year to May 2007. Average
monthly sales in the year to August 2008 (at 582) are 40.1 per cent below those
in the year to May 2007. The number of sales has also dropped in the Auckland
metropolitan area and New Zealand as a whole. All three areas are at similar or
below sales levels to those of late 2000/early 2001.
Figure 4: Monthly average number of house sales
 |
| Source: REINZ Housing Facts. |
|
Despite slower growth in house
sale prices, it is taking longer to sell a house in Auckland city. The average
of 39 days in the year to August 2008, is well above the 30 days in the year to
August 2007. A similar situation has occurred in the Auckland metropolitan area
as a whole and New Zealand has risen further to an average median of 45 days to
sell.
Figure 5: Annual average median days to sell a house
 |
| Source: REINZ Housing Facts. |
|
Further, annual averages in the
median days to sell have masked increases that are more recent. In the month of
August 2008, it took a median 43 days to sell a house, compared to 29 days in
August 2007.
Taking into account house prices,
number of sales and length of time to sell, the current slowdown in Auckland
city's housing market is moving towards the picture of 2001. If 2001 is used as
a benchmark, there is room for further decreases in median prices, while the
average number of sales and median days to sell may plateau over the next year.
Updated October 2008
