Auckland city business and economy report 2007

Executive summary | Relative economic performance | Economic structure | Affordable housing | Population | Labour market | Retail trade and tourism | Building and property | Inflation, interest rates and the exchange rate | Potential economic impacts of climate change | Economic outlook

Executive summary

Auckland city's economy grew by 4.8 per cent in the year ended March 2006, significantly above the national growth rate of 2 per cent.

Almost half of the city's Gross Domestic Product (GDP) growth came from the finance and insurance, property and business services sectors. A further quarter of the growth resulted from transport, storage and communications business. The most notable fall in activity occurred in other (non-food) manufacturing.

Auckland city's high growth rate was the result of unusually strong job growth during the same period. Growth focused in high labour productivity (value added per person employed) sectors such as finance, property and business services. The city's growth was accentuated, by the slow growth in the regional and national economies.

In spite of the growth in real GDP and strong job growth in 2006, it is estimated that the city's economy fell by 0.2 per cent in the year to March 2007. This compares with national growth of 1.4 per cent and suggests a slight reversal in the high growth of the previous year.¹ This soft landing of the economy from previous years of high growth is the result of high interest rates and the strength of the New Zealand dollar, combined with the delayed impact of slowing migration on house construction.

Real economic growth Annual average growth, March years

Source: New Zealand Institute of Economic Research, Statistics New Zealand

The forecast for the year to March 2008 suggests that economic growth will resume in the city (2.1 per cent) and nationwide (1.9 per cent).

Looking out to March 2009 the city's GDP is forecast to grow at 3.6 per cent. This is in line with a strengthening national economy on the back of lower interest rates (early 2008), a depreciating exchange rate and increasing exports. However, over this forecast period the following short-term factors may influence growth:

• Net migration has been weak in Auckland city and is expected to be only marginally positive by 2009.
• The labour market, while still relatively tight in historical terms, is slowing with employment falling or static, and wage growth slowing.
• Household spending will continue to grow, albeit at modest levels, as higher interest rates and slower wage growth cut into household budgets.
• Residential construction activity will continue to fall until the middle of 2009 in response to the decline in migration.
• Most forms of non-residential investment, other than infrastructure, will fall further over the next year, before returning to positive levels in preparation for the 2011 Rugby World Cup.
• Reasonable levels of growth being experienced by our key trading partners, combined with high world commodity prices, will assist primary exporters and make the international economy favourable to New Zealand.
• Interest rates are expected to remain at current levels until early 2008, reinforcing the value of the dollar and posing some risk of a delay in the recovery.

Over the longer term, Auckland city can expect to enjoy higher future growth than the New Zealand economy as a whole. This is largely because the nation's higher value added business services, including financial services, information communication technology (ICT) and creative sectors are concentrated within the city.

Table 1: Summary of Auckland city's economic forecasts

Published June 2007