ASB Regional Economic Scoreboard Q2 2021

Regional growth in a COVID environment

• Volatility on the Scoreboard this quarter reflects regional COVID-19 recovery differences.
• The West Coast takes the lead with the most significant turn-around, with Canterbury in second place helping to narrow the North and South Island divide.
• Hawke's Bay and Manawatū-Whanganui fell 10 and 11 places after a stellar run.
• Next quarter's Scoreboard expected to paint a different picture after current lockdown.

The latest ASB Regional Economic Scoreboard shows significant movement after several stable quarters, reflecting the relative bounce back of the country's 16 regions from the depths of last year's level 4 lockdown. West Coast was the champion for the quarter leading up to June 2021, jumping ten places to the top of the table – the first time in almost three years that a southern region has taken top spot.

The Scoreboard ranks the regions based on year-on-year growth across a range of measures including employment, retail sales and building consents. The latest report compares the three months to July 2021 with the same quarter last year, when New Zealand was deep in lockdown. Previous Scoreboards have measured growth against pre-COVID conditions. 

The results show some big year-on-year swings and ASB chief economist Nick Tuffley says we are likely to see a similar dynamic play out again following the step up in alert levels over the past five weeks.

"After a significant divide between the prosperity of the North and South Island, largely driven by the prolonged impact of the border closure on areas such as Queenstown and Central Otago, it's nice to see some of the Southern regions pull ahead this quarter, with West Coast and Canterbury bouncing back well from last year's major lockdown.

"We expect to see this continue next quarter, as the South has been less affected by the latest lockdown than Auckland for example."

West Coast performed well across all measures, with an impressive 170 percent lift in building consents and an 88.5 percent lift in new car sales year-on-year.

"It's not uncommon to see smaller regions like West Coast jump around quite a bit, given even small moves in the underlying data can produce big swings. The Coast was also coming off a low base on many metrics, scoring quite low during the height of lockdown 2020," says Mr Tuffley.

"For example, this time last year, building consents came in at just $16m, compared with $42m now. Still, it's positive to see the West Coast moving in the right direction given the ongoing challenges posed by the lack of international tourists."

It was a strong quarter for neighbouring Canterbury as well, with the region finishing near the top of the country for annual growth in house sales, employment, retail sales and consumer confidence, pushing it into second position in the scoreboard. This comes after five or six years of moderate performance as the post-earthquake boom abated, says Mr Tuffley.

In the North Island, previously second and third ranked regions Hawke's Bay and Manawatū-Whanganui fell ten and 11 places respectively, ending Hawke's Bay's golden run of almost three years in the top five on the Scoreboard.

"Hawke's Bay is still growing, it's just that other regions are now growing faster, perhaps because they headed into the pandemic with a bit of spare capacity, or they were harder hit by last year's lockdown, so they've made a bigger recovery over the past year. 

"We don't doubt the region has its challenges, however. Our research shows fruit and wine exports have been some of the most impacted by shipping delays and disruption, and the seasonal worker shortage is a big issue for Hawke's Bay too. Still, the region's orchards and winemakers have had some good news of late, with a UK-NZ trade deal expected to dramatically cut tariffs on wine and apples," says Mr Tuffley.

"This time last year Manawatū-Whanganui was champion of our scoreboard, so it's not surprising to see it dip down the rankings, with less room to grow on a number of metrics. The housing market in this neck of the woods still looks pretty strong though, with prices topping the country and outstripping even the lofty gains elsewhere at 45.4 percent year-on-year. 

The latest Scoreboard shows many industries have bounced back incredibly well over the past year, quickly getting back to pre-lockdown levels - a pattern that is expected to repeat after the current lockdown. 

The arrival of COVID's Delta variant in New Zealand has again shut down a lot of activity. Mr Tuffley says although areas such as retail sales should increase fairly quickly with alert level changes, some sectors are likely to be harder hit. 

"One of the most COVID-impacted sectors, hospitality, is likely to continue facing strict capacity limits until we can get back to level 1, and the construction and trades sector is also likely to feel the impact of this lockdown. Severe labour and materials shortages had already been constricting work, and with the borders likely to remain closed, there is little scope for inbound migration to provide more workers to boost construction capacity, so we expect the rebound here to be a little slower as well." 

Mr Tuffley says this was particularly true in Auckland, with pre-existing capacity constraints and the prolonged halt of manufacturing and distribution creating a perfect storm for construction inflation. 

"In the overall regional stakes, Auckland will undoubtedly take a tumble in the September quarter.  While Auckland remains at level 3, activity worth around 0.1 percent of annual GDP is foregone every week, although that is an improvement on the 0.3 percent foregone each week while Auckland sat at level 4.  We should, however, see activity recover substantially over the December quarter once restrictions ease further." 

The full ASB Regional Economic Scoreboard, along with other recent ASB reports covering a range of commentary, can be accessed at our ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html