Q4 regional confidence falls sharply

Confidence, a key ingredient in a healthy  economy is showing volatility reflective of the instability of world markets. The flow on from strong dairy prices is filtering into the economies of the Waikato and Southland regions but other urban areas need more than the rural boost to stimulate their areas.

Many farmers have been using this period of strong commodity prices to repay debt, which got dangerously high historically, but this will do little to recharge urban confidence in the short term.

Farmers confidence is often influenced by the weather and good grass growing conditions nationally will boost their optimism, but historical conservatism created by the volatile weather and cyclical commodity prices will mean the flow on effect will have a lag.

  Consumers’ confidence in their local economy has taken a sharp knock in most parts of the country, according to the Westpac McDermott Miller Regional Economic Confidence Survey. The picture continues to be regionally divergent, with dairy producing regions, as well as Auckland and Canterbury remaining optimistic on balance, while deep pockets of pessimism have opened up elsewhere.

The Westpac McDermott Miller Regional Economic Confidence Survey, which asks households about their expectations for their local economy over the coming year, showed confidence falling sharply in many parts of the country. Regional confidence was down on three months ago in all regions except Southland, and showed particularly large drops in the Bay of Plenty, Taranaki/Manawatu-Wanganui, Wellington, and Otago.

On average, optimists still outnumber pressimists (just), but within this there is a lot of variation. Dairy producing regions Waikato and Southland remain standout areas of optimism. Cantabrians also continue to be optimistic for their region as Christchurch reconstruction slowly gets into gear, as are Aucklanders (though considerably less so than three months ago). But some parts of the country are now very pessimistic – notably Northland, which continues to struggle with a housing bust and high unemployment, Wellington (facing the sharp end of government budget cuts) and the Bay of Plenty (where the Rena disaster and the PSA blight no doubt added to the feeling of gloom).

The survey was conducted over the period 1-11 December. The total sample size was just over 1500.

Northland: Northlanders have once again turned very downbeat on the regional economy: a balance of 27% of respondents now expect bad times for the region over the year ahead, up from 8% in September. This makes Northland the second most pessimistic region in the country. Northland has struggled with ongoing weakness in its housing market and high unemployment.

Auckland: Regional economic confidence fell in Auckland, but remains positive and above average, with a balance of 15% of respondents optimistic for their region, down from 26% optimistic in September. Auckland has been at the forefront of the housing market recovery, with prices lifting noticeably in the past few months and now around their pre-recession peak.

Waikato: Regional economic confidence dipped in the Waikato, but held up a lot better than in many other parts of the country. Households in the region remain the second most optimistic, after Southland. No doubt, the recent high dairy payout and good growing conditions are buoying the dairy heartland, helping to offset the feeling of malaise emanating from Europe.

Bay of Plenty: Regional economic confidence plunged in the Bay of Plenty, where a balance of 46% of respondents now expect bad times for the region in the year ahead – by far the most pessimistic in the country. The last time the region was this pessimistic was in the early 1990s recession. The region has taken an economic battering lately. PSA has devastated parts of the kiwifruit industry and is taking a hard toll on some communities. Meanwhile, people are no doubt concerned about the impact of the Rena oil spill on local tourism operators. And the region’s construction industry, previously a leading light, remains in the doldrums.

Gisborne/Hawke’s Bay: Regional economic confidence fell in the Gisborne/Hawke’s Bay region, but households remain optimistic on balance, more so than the national average. Unemployment is still high and the housing market remains weak, but strong meat prices and good growing conditions are boosting parts of the region.

Taranaki/Manawatu-Wanganui: Regional economic confidence in Taranaki/Manawatu-Wanganui remains positive on balance, but has fallen very steeply: back in September households were among the most optimistic for their region, but now a balance of only 7% expect good times over the year ahead.

Wellington: Regional economic confidence in Wellington plunged from cautious optimism to outright pessimism, with a net 22% of respondents now expecting bad economic times ahead. Wellington is now the third most pessimistic region in the country – unusual for a larger centre with a relatively young population. The region appears to be feeling the effect of public sector cutbacks, with unemployment rising and house prices falling 0.9% over the past year.

Nelson-Marlborough/West Coast: Economic confidence in this region held up better than in most parts of the country. Regional economic confidence remains lower than before the recession, but good returns to farmers, and a pick-up in Nelson house prices over the last year, have been providing some support. (This survey was conducted before the mid-December floods.)

Canterbury: Regional economic confidence in Canterbury fell, but remains the third most optimistic in the country, and well above the low levels seen immediately after the February Christchurch earthquake (when a balance of over 20% of respondents expected bad times over the year ahead). While parts of the economy are still struggling, repair and reconstruction has started to get into gear, wages are rising, and the market for non-damaged homes has picked up strongly.

Otago: Regional economic confidence in Otago has fallen steeply, with as many people now pessimistic as optimistic for the region (in September, a net 25% still expected good times over the year ahead). Unemployment in the region has picked up sharply over the past year, and the local tourism industry is likely to bear the brunt of the global slowdown.

Southland:  Southland was the only region to see a lift in regional economic confidence this quarter. Indeed, confidence in the region is going from strength to strength, with a balance of nearly 70% of respondents expecting good times for the region over the year ahead. And small wonder, given a bumper year for dairy and one of the lowest unemployment rates in the country.