New Zealand / Business

South Island likely to be hardest hit in Covid-19 recession - Westpac report

09:43 am on 19 June 2020

The southern regions will be the most adversely affected by the severe economic recession, while Wellington and Auckland have the best prospects for recovery, a Westpac report is predicting.

Regions such as Otago which rely most on international tourism are likely to be hardest hit in the recession, Westpac economists say. Photo: RNZ / Tess Brunton

Westpac Bank's regional roundup says all areas of New Zealand are facing a rough recession over the rest of the year as a result of the Covid-19 pandemic, but those that rely most on international tourism, such as Otago, are likely to be particularly hard hit.

Construction activity was expected to continue to slow, while house prices were expected to fall in all parts of the country.

Wellington had the brightest outlook, supported by an increase in government spending on services.

"The opening of public offices previously closed during the lockdown period and the return of public sector workers to their workplaces should also support retail spending, particularly in Wellington's CBD," the report says.

While Auckland had been hardest hit by the Covid-19 virus, it was set to recover faster than the rest of the country, with a broad-based economy and relatively low exposure to adverse global economic conditions.

"Auckland will experience a severe recession over coming quarters before posting a recovery," it says.

"Regions that are heavy on agriculture, forestry, and export manufacturing are also going to feel the effects of the global recession," the report says.

"Our expectation is that dairy, sheep and beef will be relatively resilient, while viticulture and forestry will struggle."

The rise of the digital economic, which had been boosted during the prolonged lockdown, was expected to drive economic growth in Auckland and Wellington.

"The best prospects for recovery lie in urban industries like services, distribution, and digital technology," the report says.

"ICT, software development, and online service providers have had a real leg up, and we think that bodes relatively well for Wellington and Auckland."

An increase in online shopping was expected to boost the economies of distribution hubs, such as Auckland, Hamilton, Palmerston North and Christchurch.

Regions most exposed to international tourism were all in the South Island so they would recover more slowly, Westpac chief economist Dominick Stephens said.

"We're thinking we might get to maybe 20 percent unemployment " - Queenstown Mayor Jim Boult

Queenstown mayor Jim Boult said unemployment in his area could reach 20 percent, if nothing was done to try to recover more quickly.

"Supplementary wage is soon to cease for many people and I think a lot of people who think they've got a job are going to find out they haven't got a job following this."

The school holidays would be the real signal of which companies were still in business.

"The 20 percent figure is if we don't try to to anything about it," he said. The region had set up taskforces to help recovery focusing on job creation and trying to attract events to the area.

A trans-Tasman bubble was much needed, but he feared the date would be put back. "Having Australians here would make a difference between businesses failing and people losing their jobs."

Boult said New Zealanders usually made up about half the ski season visitors and with the season starting next week he was hoping more will come to the region this year.

"We're doing everything we can to make awareness of Queenstown and Wanaka as a destination for Kiwis travelling.

"The place is absolutely stunning at the present point in time and if anybody had any concerns about overcrowding I can tell you we don't have that."

Second wave of job losses

Stephens said the big cities suffered more during the lockdown because fewer of their industries were not deemed essential.

"But I think they'll come out more rapidly."

The digitisation of the economy brought by the Covid-19 crisis was not going away, he said.

"Commerce has gone digital where it can and I don't think it's going to go back."

Workers in the hard hit international tourism industry should he helped into other industries, he said.

"We're basically asking the international tourism to halt operations for some time and incumbent on the rest of the economy to help them out."

The government had allocated money for training but that was very focused on trades. "I would advocate some for more money for training in digital-type services because that's where the growth is going to be."

"Thanks to the wage subsidy [the unemployment rate] is not going to be quite a severe as it might have been" - Westpac chief economist Dominick Stephens

Stephens said there was no doubt there would be a second wave of unemployment when the wage subsidy came off, but thanks to the subsidy it would not be as severe as it could have been.

While he had earlier predicted a 9.5 percent unemployment rate he now believes it will be more like 8 percent.

Food production was also expected to provide some economic support, particularly for the Bay of Plenty.

"Economic activity in the Bay of Plenty has fallen sharply in recent months, although the region has still outperformed most others, in large part because of favourable conditions in the horticultural sector."