Regional economies see a strong rebound but metro, tourist hotspots continue to struggle - Infometrics

Regional New Zealand saw a "strong bounce in economic activity" in the September quarter but metro areas and those reliant on international tourism continue to struggle with the COVID-19 pandemic, according to new research.

The Infometrics Quarterly Economic Monitor released on Thursday shows many businesses and consumers were able to "swing back into action" between July and September this year, after a "substantial hit" in the previous quarter as a result of strict national COVID-19 measures.

"The economic hit from COVID-19 is being felt differently across the country, with a  considerable number of New Zealand's regional areas recording a strong bounce in economic activity in the September 2020 quarter," senior economist Brad Olsen said.

"However, other parts of the country, including a number of our metro areas and those with a larger exposure to international tourism, continue to struggle as the economy operates below potential, with more people out of work and spending activity directed into other regions and industries."

Provisional Infometrics estimates show the Tasman region had the largest rise in economic activity in the September quarter, jumping 5.1 percent per annum. Auckland, however, dipped 7.1 percent per annum as a result of its regional lockdown in August. 

"Metro centres have seen sustained hits to their economies, with less activity in central urban areas as people continue to work from home and stick closer to their neighbourhoods," said Olsen.

"The Auckland restrictions in August contributed to this sustained shift in where economic activity is focused and presents a key challenge for some areas across New Zealand."

Regional economies see a strong rebound but metro, tourist hotspots continue to struggle - Infometrics
Photo credit: Infometrics

But overall, he said the "surge in activity" seen in the September quarter was "stronger than anyone expected earlier in the year", highlighting New Zealand's swift response to the pandemic. 

"A considerable amount of this higher economic activity is from playing catch-up after alert level restrictions in April and May, but our analysis shows that Kiwis got out there to support their local businesses and communities at a rapid pace."

According to Olsen, spending activity across the country was 3 percent higher than a year earlier, with Northland spending up 14.8 percent per annum. 

"'Buy local' campaigns have seen Kiwis back their local firms and workers,  with households presenting a more upbeat mood than expected."

The research found domestic tourism activity helped some regions rebound while others were assisted by "solid primary sector activity". 

"The September 2020 quarter provides an upbeat assessment of the economy, and the rebound in [economic] activity is a success story that should be celebrated. Kiwis have responded to the call to back local, and it’s paying dividends for local economies," Olsen said.

Despite that, Olsen said the economy continues to operate below pre-pandemic levels with continued uncertainty. 

"The 2020/21 summer will be a tough period for the tourism sector, and the year ahead still shows considerable challenges. But the strong rebound in economic activity has provided New Zealand with the strongest  foundation from which to rebuild."

The unemployment rate hit 5.3 percent in the September quarter, up from 4 percent - the highest quarterly rise since 1986 when records began. 

However, it remains far below what was projected back in May's Budget. Then, the Treasury suggested unemployment could reach 9.8 percent.  In September's Pre-Election Economic and Fiscal Update (PREFU), it forecast the rate would peak at 7.8 percent in the next two years. 

"Job losses have still mounted, with over 60,000 additional Jobseeker Support recipients in the September 2020 quarter compared to a year earlier. Job losses haven’t been as substantial as feared, but the considerable rise in support underscores the challenges ahead for many," Olsen said on Thursday. 

In October, Infometrics forecast a double-dip recession would hit in 2021, with the economy remaining vulnerable due to the continued border closures and a possible drop coming soon in consumer spending. 

"The next few months will be crunch time for the New Zealand economy," Infometrics chief forecaster Gareth Kiernan said at the time.

"The loss of international visitors will be keenly felt by tourism operators during the normally busy summer month, while retailers will also be hoping that spending momentum continues into Christmas. 

"Other businesses are also likely to reassess their staffing requirements heading into the new year if there is any softness in demand conditions."