To the year ending December 2019, the New Zealand economy looked to have turned the corner, at least temporarily. Although growth has slowed, some near-term indicators have shown improvement. Improved business and consumer sentiment showed a more upbeat view of the economy, setting the foundation for sustained growth, likely at a slower pace, in 2020. Government spending announcements are expected prior to the May budget, particularly in relation to the health sector and increases in benefits. Recent infrastructure announcements are good news for regional growth; however, it will be a while before we will see a direct impact.
A significant risk to this growth is the COVID-19 outbreak. It will restrain tourism, export activity, disrupt supply chains and will threaten consumer and business activity if the outbreak continues to spread throughout New Zealand. As a region, we must support our business community. If you are struggling due to the impact of COVID-19, then please get in touch with our business team.
The Manawatū regional economy continues to perform well, growing by 2.4% GDP to the year ended December 2019. This is slightly above the national growth rate of 2.3%. Other indicators also reveal growth in the region, with traffic volumes increasing by 2.0% and electronic card spending on retail purchases up by 3.3%.
The housing market continues to be busy. House sales remain historically high at around 2,000 per year, in part thanks to a growing population as health enrollments (a proxy for population growth) were up 4.4%. The busy housing market, combined with low interest rates and strong consumer confidence, means house price inflation in the Manawatū region remains upbeat at 17%, well ahead of national growth at 3.6%. This inflation in house prices may also be related to the drop in regional residential building consents which have fallen by 7.6%, most likely due to a capacity issue.
Tourism spending in the region edged up by 2.8% to $491 million. It’s likely to be a tough year ahead with COVID-19 expected to hit international visitor numbers, although domestic consumer numbers remain upbeat and the virus may encourage more Kiwis to take their holidays closer to home.
Overall consumer spending in the Manawatū grew by 3.3%, which is the same increase as the whole of New Zealand. Consumer spending continues to grow steadily, and the good news is that there are good prospects for wage growth in the coming year to keep spending up. Interest rate cuts will also start to flow through to household budgets as homeowners re-fix their mortgages, potentially leading to an increase in discretionary spending.
The region’s unemployment rate fell again to 4.8%, reflecting a fall in the national rate to 4.1%. However, the region’s Jobseeker Support recipients continue to rise, growing 5.9%, compared with 10.6% nationally. It is possible that the government’s more lenient stance towards beneficiaries is encouraging more people to claim JobSeeker Support.
Visitor Market and Consumer Spending
Tourism spending in Manawatū continues to grow, with an increase of 2.8% in the year to December 2019, slightly behind a national increase of 3.5%. The total tourism expenditure in Manawatū was approximately $491 million, up from $478 million a year ago. While the rate of total tourism spending in the region is below the national growth rate, both domestic and international tourism spending in the region is growing faster than the national growth rate. That’s because international tourism is growing much faster than domestic tourism yet makes up a smaller share of the tourism spending share in the region. The region’s domestic tourism spend increased by just 1.3% in 2019, while international tourism spending increased by 6.7%.
Manawatū’s continued tourism growth can be attributed to the region’s affordability, central location and strong events scene. New assets such as the Manawatū River Pathway’s He Ara Kotahi and further investment in Te Āpiti – Manawatū Gorge will become greater drawcards in the future as they bring recreational visitors to the city.
Disrupted road routes such as the closing of the Manawatū Gorge have had and will continue to have an impact on domestic tourism. Road improvements which will be completed over the next two years, such as Transmission Gully and the Ōtaki Expressway will lessen this impact.
Housing and Population
As our region continues to grow, we face some significant challenges. We do not have enough housing for our region’s population, and while the answer may seem simple – build more – it’s a complex issue to resolve. The infrastructure to allow land to be developed must be put in place, but some land is actually being held back from development. This, coupled with a building sector that is made up of a large number of small businesses, many of which are reluctant to grow, or cannot find people with the right skills to support their growth, makes for a ‘wicked problem’. And this is not only a problem in our region, New Zealand is facing identical issues.
The number of new builds is increasing but not at a fast-enough rate to keep up with the demand, and this demand will only become greater as large capital projects such as Te Ahu A Turanga – Manawatū Gorge replacement route and KiwiRail’s regional freight hub come to fruition.
While consumer confidence is high, Manawatū consumers remain cautious in their outlook and spending. Consumers are reluctant to make major purchases with car registrations down by 3.5%. On a national scale, this cautious approach is also evident with car sales decreasing by 8.6%. Biosecurity restrictions on imported second-hand cars have had an impact on registrations. In addition, the tightening of lending criteria by banks may be slowing the potential for households to borrow to purchase a car.
Nationally, the sale of used small cars has remained roughly at the same level over the past two years, while large new and used cars are in a sharp decline. These conflicting trends in small and large car registrations reflect a mixed economic environment with robust consumer confidence, rising wages and a resurgence in house price growth contrasting with subdued business confidence and softening employment prospects.
At a local level, business growth can be seen with the increase in commercial vehicle registrations at 17.2%. This growth was higher than in New Zealand, where commercial vehicle sales decreased by 6.9%.
While unemployment rates continue to be higher than the rest of New Zealand (4.8% compared with 4.1%) the number of jobs are increasing in Manawatū by 3.5%. With numerous capital works projects planned for the region, further employment opportunities will arise.
Jobseeker support recipients are also up, growing by 5.9%, however the rate of growth in the region did slow in the second half of 2019. At a national level, benefit growth was much more significant at 10.6%. We tend to attract many jobseekers as our housing is more affordable than the major centres in New Zealand.
Manawatū continues to offer solid opportunities for businesses and investors due to the comparative advantages that the region enjoys. We have exceptional locational advantages, including linkages to transport and logistics infrastructure. Our scientific, research and development institutions and capabilities will continue to play a crucial role in supporting innovation in the region, particularly in the Agrifood sector. Whilst our region is in great shape overall with strong consumer and tourism spending, job increases, a growing population, house price rises, there is a level of uncertainty due to the COVID-19 and its potential impact on our economy and businesses are feeling the impact. CEDA will be monitoring this impact closely and we are both making on-line information and advice available and are here for business support. Talk to our business team today to find out more.