Business / Country

Rural backbone of regions expected to stand up better to economic woes

07:16 am on 17 June 2022

Rural economies are expected to outperform their urban counterparts in the year ahead, due to the strong demand for agricultural exports.

The effects of a weaker housing market would be offset by strong agricultural and tourism sectors. Photo: 123rf.com

Westpac Bank's annual Regional Roundup report forecasts economic growth would slow in the year ahead, as high inflation and rising interest rates put pressure on household budgets.

But the severity of the slowdown would be felt differently across the country.

The outlook for the cities, in particular Wellington and Auckland, would be challenging because they had two of the worst performing housing markets in recent months.

With interest rates rising, higher debt servicing costs in these regions would limit discretionary spending over the coming year, the report said.

All regions would experience the consequences of a weaker housing market, but the effects would be offset by the strong agriculture and tourism sectors in Otago, Southland, Waikato and Northland.

"On balance we think that regions that have a rural backbone, and are set to benefit from agricultural incomes, will outperform those that do not," it said.

"Not only that, but we think the performance gap between these two groups will widen over the coming year."

Westpac industry economist Paul Clark said construction activity should help offset some of the softness in other parts of the economy.

"Strong consent issuance suggests that homebuilding activity in most areas of the country will remain firm for the foreseeable future."

However, he said the construction industry would be tested by capacity constraints, including supply chain disruptions and skills shortages.

The same could be said about tourism, Clark said, as all regions would benefit from borders being opened to foreigners.

"However, it's Otago and to a lesser degree Auckland that are set to benefit most from a resulting pick up in tourist spending."