Economic and Labour Market Update - January 2010

The New Year marks one which will be significant for Auckland, given the reorganisation of its governance structure. Interestingly the Nobel Memorial Prize in Economic Sciences was awarded jointly to Lin Ostrom and Oliver Williamson in December for their economic analysis of governance.

This monitor looks at the recent macroeconomic indicators published, which sets the context for the Auckland economy. It also discusses recent additions and tools for labour market analysis in Auckland, by the Department of Labour, and some interesting economic research initiatives by the Ministry of Pacific Island Affairs in the Auckland region.

Most significantly, the appreciation of the New Zealand dollar is affecting exporters, a blow after the recent pick-up of global trade and export activity. The higher exchange rate impacts on non-commodity exporters, given that commodity prices rose in the last six months. Thus the Reserve Bank remains cautious of the tentative indicators which suggest that New Zealand is out of recession. Overall between July 2008 and December 2009, the OCR dropped 5.75 percentage points. New Zealand’s current account improved in 2009, largely due to the reduction of imports, reduced interest payments and profits accrued to foreigners and tax settlements against the banking sector.¹ For the year ended November 2009, New Zealand had its smallest annual trade deficit in more than seven years, as import decline outpaced that of exports. For the six months between March and October, the value of exports exceeded that of imports, while imports marginally exceeded exports again in November 2009.² New Zealand's current account deficit was $5.7 billion (3.1 percent of GDP) for the year ended September 2009 and the smallest as a percentage of GDP since March 2002. The deficit has fallen from 8.4 percent a year ago, when the current account deficit was $15.4 billion.³ There is still concern that these debts are attributed to high levels of household borrowing, largely in the property/housing market.

In December, Treasury published two papers focusing on household debt and saving rates in New Zealand, which expose some interesting insights into household behaviour.⁴ Between 1982 and 2007, household debt grew from 33% to 149% of household disposable incomes. This was against a backdrop of a faster growth of assets during this time. Mortgages made up 85 percent of total liabilities, the remainder comprised of credit card debt and student loans.⁵ The Treasury paper explored ‘vulnerable’ individuals and partnered couples, in terms of having debt servicing obligations exceeding 30 percent of gross income. Overall the paper concluded that the household balance sheets in New Zealand donot appear to be a cause for concern, but that risk associated with debt could be reduced by diversifying portfolios, away from the housing market. The housing market in Auckland seems to have rebounded, which leads to an expectation of growth in residential building. The valuation and property information company ‘Quotable Value’ reported that house prices in Auckland rose 5.1 percent over 2009 above the rise of 2.8 percent nationally. The average sales price also rose to $535,197.

The New Zealand Institute of Economic Research’s (NZIER) quarterly survey of business opinion showed that confidence in the general business environment is stabilising. This is in comparison to the fall in confidence of a year ago, when business outlook was pessimistic. Overall a net 23 percent of businesses expected the situation to improve.⁶

As with the rest of the country, Auckland is emerging from the recession, with positive growth for the second successive quarter again in the September (quarter on quarter growth). The annual average percentage change to September 2009 is still negative at -1.4 percent for the region. This is somewhat better than the annual average figure for the country as a whole, of -2.2 percent. Thus the regional economy is technically out of recession, although there may be a lag until growth is evident in the labour market.

Figure 1 Gross Domestic Product (2000-2009)