Resilience the key to getting through tough economic times

The Eastern Bay of Plenty economy is strong and resilient but, like all rohe, will need to grapple with the challenging global and domestic outlook.

That was the key message from Infometrics Chief Executive and Principal Economist, Brad Olsen, at a seminar in Whakatāne earlier this month.

Hosted by Whakatāne District Council, with support from Ōpōtiki and Kawerau district councils and Bay of Connections, more than 50 local businesses, iwi, council and central government leaders gathered to hear Brad present on the current state of the Eastern Bay of Plenty economy and his economic outlook.

Despite a tough year ahead, Infometrics is not expecting ‘GFC 2.0’ or a COVID lockdown-style hit to the economy. While a nationwide recession is still anticipated, it is well-signalled and will be different to those experienced in the past, Brad says.

A strong primary sector is key to the resilience of the Eastern Bay of Plenty economy, making up 16 per cent of employment in the rohe. The forecast dairy payout of $372m in 2023 will support the local economy as it flows through to local suppliers and businesses.

The professional, scientific and technical services sector is growing in the subregion, enabled by more remote work opportunities and the attractiveness of the area, offering excellent lifestyle opportunities, and good connectivity and transport links to support business activity.

Employment growth in Eastern Bay of Plenty has been driven by the Māori economy, with Māori employment growth rising faster than overall regional growth.

A high level of construction activity is in the pipeline, as evidenced by residential and non-residential building consent numbers, indicating increased business activity and confidence to back local.

Regions across Aotearoa have recorded generally strong economic outcomes recently, and the Eastern Bay of Plenty is well-positioned to weather the challenges ahead.

Touching on the global economy, Brad noted Aotearoa is increasingly more dependent on other economies than our own.

Our country needs as many friends as possible in the current geopolitical environment to mitigate the impacts of constrained global economic activity and to ensure trading success, he says.

Nationally, several factors are contributing to challenging conditions, however, Infometrics expects the predicted recession will not be deep compared to recent downturns.

Housing affordability and increased mortgage rates have primarily impacted first-home and more recent buyers. Infometrics analysis shows that on average, New Zealanders spent 49 per cent of their income on the first year of mortgage payments in 2022, and will spend on average one-third of their income over a 25-year mortgage.

Employment levels are rising, and unemployment remains lower than normal. Competition for talent in sectors such as health and agriculture is making it more difficult to find and retain workers. However, job ad numbers are pulling back, signalling a level of caution by employers.

Net migration in New Zealand is higher, putting increasing pressure on housing and infrastructure.

Brad highlighted the need to address skills and labour market challenges, particularly with demographic changes and New Zealand’s ageing population resulting in the number of people leaving the workforce outweighing those entering.

With the Reserve Bank raising interest rates to curb inflation, the big question is: ‘Have we cooled the jets?’ With half of mortgage holders needing to refix in 2023, household spending will drop. Businesses expect further cost increases.

Inflation is plateauing but not yet falling, with expectations for core inflation to remain higher for longer due to the impacts of Cyclone Gabrielle and recent storm events.

Although subsequent figures have finally shown a moderation in the pace of price rises, Infometrics analysis has highlighted domestically-based inflation has surged to a record high.

Significant imbalances in supply and demand for food have seen prices increase 12 per cent, farm expenses are up 14.6 per cent versus inflation at 7 per cent. The rental accommodation market and construction sector are also experiencing issues with reduced supply and high demand.

New Zealand’s economy is still trying to do too much with too little. We are living beyond our means, as evidenced by the record current account balance of $33.8 billion, or 8.9 per cent of gross domestic product, for the year ended December 2022.

In closing remarks, Brad emphasised the outlook was not all doom and gloom, and that current forecasts are not as bad as the early COVID-19 impact predictions.

Resilience in the local economy got us through that period, we need to back ourselves and work through it again.

Visit the Infometrics website to stay up to date with the latest news and opinion from Brad and the Infometrics team.