Infometrics says strong growth in major exporting regions will help underpin the country’s economic growth during 2019.
For the first time since the consultancy started tracking regional performance in 2001, all four of the largest urban areas are growing slower than the national average.
Auckland, Wellington and Canterbury were the slowest-growth regions in the year ended March. Taranaki and the Bay of Plenty were the fastest growing at rates of more than 4 percent, Infometrics said.
Chief forecaster Gareth Kiernan says the recovery in dairy prices since 2016 and strong prices for most of the country’s other export commodities have boosted spending in the provinces.
Population growth, bolstered by the international migration boom and an increasing outflow of Aucklanders seeking a better and more affordable lifestyle, has also contributed.
“Many of the drivers of urban growth have peaked, including migration, the housing market, and construction activity,” Kiernan said in a statement.
“Most of the New Zealand economy’s momentum over the next 18 months will come from provincial areas, thanks to strong export incomes.”
New Zealand’s exporters are enjoying strong international prices for logs, meat, oil and aluminium, while a weaker local dollar since May is also boosting returns. Log exports were a record in March and an index of dairy prices has been relatively stable the past two years after plunging through 2014.
Infometrics says the strength of the provinces has contributed to an upward revision for its growth outlook during the next two years. The government’s fiscal position is also stronger than previously thought, leaving more room for spending that may also stimulate the economy.
It has now added a half percentage point to its expectations for government consumption growth in 2018 and 2019. That growth now averages 2.9 percent for the two years. Its April forecast had assumed that growth would trough at about 2 per cent in early 2019 before rising slowly through to 2021.
Infometrics also expects stronger household spending for the next 18 months, relative to its April forecast. Stronger wages growth had also contributed to that lift, the firm said.
While the regional outlook is good, Infometrics said it’s not all rosy and growth in 2019 will still be the slowest in five years.
Other risks facing the provinces include the Mycoplasma bovis outbreak in some regions. The disease, commonly found in cows globally, does not affect people or meat quality but does cause other health issues for stock.
Infometrics said the government’s plans to eradicate the disease are not guaranteed and it could spread further.
Other risks for the regions include the on-going shortage of skilled workers and the potential for the trade ructions between China and the US to slow global demand growth. Any further slowdown in China would also affect New Zealand, given it is the biggest buyer of the country’s exports.