Economic activity settles in south

MARTA STEEMAN
Last updated 05:00 26/07/2014

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Economic activity in the South Island is settling into a more manageable 4.2 per cent trend growth three years after the February earthquake.

The Mainland Monitor's economist, Robin Clements, extracts data from several surveys for The Press to provide a quarterly snapshot of South Island economic health.

Business confidence, investment intentions and profit expectations are starting to fall from record highs. Clements suggests reality is setting in and growth from one quarter to the next is notoriously volatile.

"Even though many of these survey measures have fallen historically, they are still very high," Clements says.

"They may not be the multi-decade highs any more, but they are still at the high end of historical experience."

Consumer confidence in job security is noticeably higher than it was.

Although firms' expectations of profitability have dropped since the first quarter of the year, they have typically been more pessimistic than optimistic on this score (as the graphs show on C19).

Investment intentions in respect of buildings probably have hit their peak.

It may not mean companies intend to invest less, but the timing may be spread over a longer timeframe.

The next surge of growth in Canterbury may come from the public sector anchor projects in the central city.

Arguably a longer rebuild timeframe is more sustainable, he says.

Two years ago Clements was forecasting an outlook for trend growth of 7.5 per cent in the South Island but has pulled that back to 6 per cent as activity eases around the country and growth moderates in Canterbury.

In Canterbury, economic activity has fallen from the heady heights of 2012 when the region rebounded from 18 months of devastating earthquakes. Economic activity in the 2012 year was 7.5 per cent stronger than in 2011.

The latest ANZ regional trends economic activity index reveals how much that has moderated. Activity in the March 2014 quarter was 4.9 per cent stronger than the same quarter the year before.

Clements says the South Island economy will continue to be heavily influenced by the Canterbury rebuild for several years to come. The high exchange rate, falling commodity prices and rising interest rates will inevitably prove to be headwinds, with the impact varying by industry and region.

However, the earthquake reconstruction work will underpin ongoing growth in the near term and high levels of economic activity beyond that.

The Canterbury economy will be dominated by earthquake reconstruction work for many years. Growth rebounded immediately after the earthquakes, repair work - infrastructure and then housing - stepped up, as did demolition activity, while replacement new housing has now begun to accelerate.

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Private sector commercial development has been more evident in the past year. The next key wave of activity will likely rely upon public sector rebuild projects.

HIGHLIGHTS 2014

Largest fall in business confidence in two years in the second quarter.

Biggest drop in profit expectations in the second quarter from two years ago.

Two quarters of decline this year in investment intentions.

Sharp drop in employment intentions from Q1.

Consumer confidence easing.

The first quarter retail sales weakest since June last year.

New car sales rising strongly.

Residential consents holding at a high level.

Non-residential building consents strong trend for two years.

Unemployment under 4 per cent. 

- BusinessDay.co.nz

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