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

Economic outlook for the city

Economic growth slowed over the past year, and is expected to bottom out around mid 2007 before growth rises again to approximately 3.5 per cent in the year to March 2009.

Net migration in New Zealand is declining as the economy slows and the labour market moves away from recent historical lows. This will affect Auckland, as it is the major settlement destination for migrants. Residential investment will continue to fall, partly in response to the fall in migration.

The outlook for the next 12 to 18 months, however, is of recovering growth assisted by the following elements:

• Consumer spending will remain solid, growing at modest levels, as higher interest rates and slower wage growth cut into household budgets.
• Business and consumer confidence will return in 2008 as the economy begins to pick up again, and consumer spending will increase at the same time.
• The general business outlook reported by firms for Auckland city is still negative, but much less so than during the first half of 2006. This indicates a business sector that may be nervous about short-term market prospects, but not to the extent that firms will be downsizing. They will be reluctant to reduce staff numbers, given the likelihood that it will be difficult to recruit staff when there is an upturn in demand.
• The government's expansionary fiscal policy will mean public spending will continue to be a key driver of growth.
• The international economy looks positive for New Zealand, with reasonable levels of growth in our key trading partners. High world-commodity prices are expected to continue, which will assist some (but not all) primary product exporters to offset the high dollar. Auckland suppliers and service providers to these exporters will benefit from strong demand. However, Auckland exporters, who are generally not in these markets, are in for a difficult year ahead.
• Growth in our trading partners will also lead to relatively healthy growth in tourist numbers over the next two to three years, with a recovery in visitors from Japan and strong growth in visitor numbers from China. This will have benefits for Auckland as the country's major tourist gateway and a significant visitor destination.

Economic growth will increase to 2.1 per cent per annum in the year to March 2008, slightly higher than national growth of 1.9 per cent. Growth will then strengthen to 3.6 per cent in the year to March 2009. Auckland city will continue to follow the growth trend experienced nationally. However, over the longer term Auckland city's growth will be higher. This is largely because New Zealand's high value added business services, such as financial services, ICT and creative industries, are concentrated in the city.

The OCR is likely to remain at current levels until early 2008, reinforcing the value of the dollar. The combination of higher interest rates slowing the domestic economy, and lower returns to exporters for as long as the dollar remains high, means a significant possibility of a delay to the recovery. This raises the risk of lower than expected growth through 2007 and 2008.

Auckland city in figures