Severe Hit to the Regions – New Zealand is Not Out of the Woods

The latest Infometrics Quarterly Economic Monitor shows a substantial hit to regional economies from the COVID-19 pandemic and New Zealand’s restrictions during the Level 4 lockdown alongside the move down the Alert Levels. The Monitor provides the most comprehensive analysis of regional economic changes so far during the pandemic.

“The immediate economic ramifications vary by region and the end results are clear to see – economic activity has fallen in all regions, nearly 50,000 Kiwis have lost their jobs, businesses have struggled to cope with lower earnings, and incomes were reduced," said Infometrics Senior Economist Brad Olsen.

Infometrics currently expects that economic activity was down 12.6%pa in the June 2020 quarter, as the economy endured a dramatic shift in focus, from life support at Level 4 to an adrenaline rush at Level 1 over the three-month period.

Not all regions have felt the economic effects of the pandemic equally. Otago region saw the hardest hit to economic activity, with a 15.6%pa drop, as the collapse in tourism activity hit a number of local economies. Meanwhile, the Manawatū-Whanganui and Gisborne regions weathered the storm as well as could be expected, with economic activity falling by less than 9%pa.

“The structure of local economies is key to deciphering how the economic hit will reverberate throughout the New Zealand economy,” said Olsen.

Local economies with a strong tourism focus have seen a deeper hit to activity, and those with a greater economic focus on international tourism will feel the prolonged effects of the downturn.

“Those local economies with a strong primary sector, particularly in food production, have held up better as New Zealand’s exports continue to feed the world. Combining these various effects has resulted in a scattered regional economic picture.”

Spending dropped considerably during the Level 4 lockdown and during Level 3 restrictions but bounced back as New Zealand moved back down to Alert Levels 2 and 1.

However, this rebound hasn’t been enough to make up for what wasn’t spent, with Marketview data showing spending in the June 2020 quarter was down 20 percent compared to the same quarter last year.

Job losses have also mounted, with over 50,000 additional people on a Jobseeker Support benefit or COVID-19 Income Relief Payment by the end of June, taking total jobless support numbers to over 200,000. Infometrics expects job losses to continue mounting as the economy adjusts.

“Regional economies have taken a battering from the pandemic, but local leaders, businesses, and communities have shown incredible resilience to get their local areas moving ahead. Rapid deployment of support, and strong local coordination, has meant that regional economies have responded immediately to get the economy moving again, with a focus on building the economy back better.”

The June 2020 quarter likely represents the largest single hit to the New Zealand economy on record, but the economic scarring and restructuring will continue to occur over the coming years. New Zealand is not out of the woods yet.

Brad Olsen
Senior Economist
Infometrics