With economic indicators showing the two ‘super powers’ of Auckland and Christchurch leading the way, there is a danger that other parts of the country will miss out on the economic growth that is predicted over the next few years.
The government reports a broad-based and wide spread economic recovery is under way, delivering benefit to all New Zealanders. Economic growth was reported at 3.1% for the 2013 year, and is forecast to average 2.8% over the next four years, peaking at 4% in 2015. Employment is projected to steadily drop each year from its current 6.2% to 4.4% by 2018.
However, very strong growth in Auckland and Christchurch continues to boost the New Zealand economy with Christchurch recording a staggering 6.6% GDP growth in the year ended December 2013, and Auckland a more measured but still strong 2.3%.
Both economies have a strong construction and property investment base - but for distinctly different reasons. Christchurch is underpinned by the $40 billion earthquake rebuild while Auckland’s growth is spearheaded by a massive demand for new housing and major infrastructure projects, largely driven by population growth.
Increased equity in established residential housing continues to fuel confidence in Auckland and allows the flexibility of unlocking capital for housing upgrades, business investment and consumer spending.
Anecdotally it looks like the rest of the country is improving, but not at the same pace as Auckland and Christchurch, presenting a risk of New Zealand becoming a two paced economy. For an understanding of the risks of this, one only has to look across the Tasman at the Australian economy, where the booming mining sector hid structural deficiencies of the rest of the Australian economy which are now coming to fruition.
Statistics New Zealand, in their last report of GDP figures for year ended March 2013, said that eight of New Zealand’s 15 regions showed a decrease in GDP over the previous year with the West Coast, Hawke’s Bay, and Gisborne leading the decline. Gisborne had the lowest GDP per capita ($34,472).
There are some bright spots, other than the super two, identified by Statistics New Zealand included Taranaki which recorded the highest GDP per capita at $74,341, followed by Wellington ($57,941) and Southland ($52,701). The national average was $47,532.
The high average figure for Taranaki is largely due to the contribution of oil and gas operations and to a lesser extent dairy farming.
Interestingly, the 2014 budget is largely silent on material initiatives with regional focus.
Christchurch maintains a strong presence in government spending, recognising the $40 billion rebuild required. The government reconfirms the $15.4 billion of government spending in this city. This budget delivered a further $50 million commitment in operating funding to the Canterbury Earthquake Recovery Authority. It also confirmed the current multi-year commitments of $313.8 million operating funding and $150 million in capital funding to continue land acquisitions.
Auckland receives an additional $375 million to accelerate its transport projects. The aim is to address the congestion problems Auckland faces, and capitalise on the benefits of current major roading projects such as the Western Ring Route and improved access to Auckland International Airport.
Further initiatives of relevance to these cities, given their acute housing issues, relate to a temporary three year suspension of duties on building products to increase competition and increase housing affordability. This is part of a housing affordability package designed to free up land, reduce costs, and reduce the time and cost of resource and building consents.
The only regionally focussed initiative of note relates to an additional $40 million of new funding for irrigation projects in the form of capital funding through Crown Irrigation. Crown Irrigation targets bridging investments in irrigation schemes that might not be established solely through private financing.
With the ongoing super growth of Auckland and Christchurch, and continued additional funding initiatives in both those cities, there is a fine balancing act of not over heating the economic development of those cities, and leaving the rest of New Zealand to stagnate or decline.
The government has a philosophy of relying on broad economic policies to deliver maximum benefit to all New Zealanders. However, the advancement of New Zealand as a whole relies on the contribution of all New Zealand, and thus facilitating continued regional economic development must remain a priority to ensure New Zealand does not become solely, a tale of two cities.
Tim Downes is National Managing Partner, Grant Thornton New Zealand