Economic and Labour Market Update - October 2009

Seasonally adjusted quarterly GDP shows stronger growth in Auckland than for the country as a whole.  This month’s Regional Economic Update looks at growth in the Auckland region, and tries to uncover what is driving it.

We also report on recent activity within the various economic development agencies, highlighting trends in industry and businesses within the region.

Economic activity was up 0.1% in the June 2009 quarter – the first quarterly increase in gross domestic product (GDP) since December 2007. However, this movement is so close to zero, and subject to revision, so it may not necessarily mark the end proper of the recession.

Recently released regional GDP figures show Auckland is also moving out of recession.  In fact, seasonally adjusted quarterly GDP shows stronger growth in Auckland than the rest of the country.  The seasonally adjusted quarterly percentage change for Auckland (1.1%) was greater than for the rest of the country (Figure 1); however this is primarily due to the fact that the Auckland economy contracted more strongly over the previous quarter, making this percentage change more dramatic.

Figure 1 Seasonally adjusted quarterly GDP for the Auckland Region

Source: Statistics New Zealand and Infometrics Ltd

The annual change in GDP for Auckland was marginally worse than for the country as a whole. Economic activity for the year ended June 2009 contracted 1.9% in Auckland, compared with a 1.8% contraction in the national economy (Figure 2).

Figure 2 Gross Domestic Product (Annual change)

Source: Infometrics Ltd. 

The recent increase in regional GDP was primarily due to growth in the government, education, and communication services sectors. This growth was offset by a decline in economic activity in the accommodation, cafes and restaurants sector, and the transport and storage sector.

The construction industry showed a slight expansion from the previous quarter, but building consents in the Auckland region for the month of August showed no growth.  In comparison, nationally, the seasonally adjusted number of new dwellings authorised, excluding apartments, rose by 2.8%; the highest level since September 2008¹.

As with the technical end of any recession, this positive growth is welcome, but not necessarily cause for celebration as the effects in the real economy, such as growing unemployment, continue to take effect.   The next regional unemployment figures (for the September quarter) will be released in mid November.

A recent KPMG survey of 189 small to medium sized companies throughout the country, showed that only 15% now remain pessimistic about their future prospects. However, an analysis of these survey results at the regional level, showed that Auckland businesses are less optimistic, due to expectations of the need to make further redundancies. Sixteen percent of the Auckland businesses sampled anticipated a reduction in staff numbers, compared with only 4.5% of businesses in Wellington and Christchurch².

Debt growth remains slow in the business sector (excluding farming). The annual rate of business debt growth was -0.3% in August, down from 9.7% for the equivalent period a year ago. Over the past three months business debt has fallen by $1.6b.  Farm debt has been increasing during this time, which is causing concern to economic commentators and the Reserve Bank³.  The Reserve Bank left the official cash rate (OCR) unchanged in September. The Bank also released collated monthly figures showing  that the annual rate of growth in lending to the household sector also remains very low at just 2.3% in August, down slightly from 2.4% in July. This is the weakest debt growth for this period of time since 1998.

Waitakere - Within Waitakere city, considerable attention is focusing on ‘Yard 37’, and links with the marine industry. Yard 37 (located at 37 latitude, on part of the old Hobsonville airbase) will be an $80 million, 20 hectare development, developed by Waitakere Properties. It will have a strong emphasis on the building and refitting of superyachts, up to 75 metres long. Planning is already well advanced, and the necessary consents have been applied for, and are expected to be in place by the end of next year. The first buildings are likely to be completed in 2011.

A Job Fair was held in Laidlaw College, Waitakere last month, focusing on skills awareness amongst students. This was an example of successful partnership between education, business and government.  The Job Fair was organised by the careers departments of local high schools and a wide spectrum of industries were represented.

Manukau - Work on the Manukau-based food innovation centre is progressing. The need for greater innovation in methods for exporting foodstuffs from New Zealand is widely recognised, and Enterprising Manukau was instrumental in the conception of this project -  identifying the opportunities for galvanising support from a range of partners:  food industry businesses, Massey University, and AucklandPlus (who are currently leading the working group). Last year, the food and beverage sector contributed 52% of New Zealand’s annual export revenue⁴, but attention is now moving away from primary commodity export to focusing on value added through processing and packaging. A funding decision from the Ministry of Economic Development in relation to this project is expected later in the year.

Rodney - Also, Linked to the food industry, Rodney Economic Development Trust is progressing an industry-led regional land-based aquaculture cluster. The project is gaining momentum, and this niche sector has identified a range of potential opportunities, including production of fish for consumption on the domestic and export markets, as well as the production of fish for environmental remediation, and use as bio-controls. 

Franklin - With the Rugby World Cup approaching, tourism work is progressing in Franklin, with a focus on attracting visitors keen to engage in a rural experience. A marketing campaign has been developed entitled “Where will you go today?”  featuring rural tourism experiences easily accessible as day trips from Auckland. The equestrian sector is another project of focus for Enterprise Franklin, given that Franklin is home to many disciplines of equestrian activity. These range from sport horses to the more lucrative racing and breeding of horses. Preliminary studies indicate that in the racing industry, approximately every 5 horses in a racing stable attracts at least one job (full time equivalent). The sector also offers significant export income.

Te Puni Kökiri have recently launched a new research paper on Maori contribution to economic development in the Auckland region.  Maori make up just over 11% of the total population of the region; and Maori participation in terms of value added by Maori producer enterprises to Auckland’s GDP was 2.8% in 2005/2006, whereas Maori participation in New Zealand’s GDP was 5.3%⁵.

The level of foreign or international exposure to the Auckland economy is also the focus of two pieces of forthcoming research by the Auckland Regional Council.  The first piece focuses on foreign direct investment, and aims to produce findings on representative investment types and the motivations for investment for the Auckland region; while the second report focuses on exporting industries.  Both pieces are timely given the need to address the current account balance of the country by expanding exports as a proportion of GDP. In the early 1970s, exports made up about 28% of New Zealand’s GDP.  This ratio remains largely unchanged, with New Zealand now more dependent upon exports from the primary sector than previously⁶. 

The New Zealand Treasury also released a new report, Infrastructure report: Facts and issues in September, which discussed issues pertaining to Auckland’s longer-term transport and infrastructure needs.  The report, which examines different infrastructure funding models, makes the case for the importance of infrastructure projects for shaping economic possibilities within our cities; concluding that:  “major transport projects have a significant impact on the location and form of economic activity – they tend to shape urban development rather than follow it”. This publication is timely, given that the Regional Sustainable Development Forum has recently endorsed the One Plan: Auckland Regional Infrastructure Inventory. This document provides information on Auckland’s regionally significant infrastructure projects, current and planned over the next 30 years⁷.