Regional economies that escaped extended lockdowns during the Covid-19 Delta outbreak have performed strongly, as they benefited from strong commodity prices.
File image. Photo: RNZ / Nate McKinnon
The latest Westpac Regional Roundup report shows the emergence of the Delta variant created a performance gap between regions that had fewer restrictions, and those that were forced into lockdown.
Westpac industry economist Paul Clark said that meant regions in the upper North Island did poorly, while those that were doing well had strong rural connections.
"Dairy prices are reaching new highs, meat prices are going along great guns, kiwifruit prices are doing well, so that really supported the rural regions."
House prices also helped regional activity.
As restrictions lifted, the expectation was that the upper North Island would quickly catch up with other regions, Clark said.
"That said, regions that have a large rural backbone are well set and we expect them to continue to lead their metropolitan counterparts over the coming year. Indeed, most growers and farmers can expect to benefit from healthy price levels and a positive tailwind provided by a weaker NZ dollar."
Construction of new residential building had also increased, which was helping the economy tick along, Clark said.
"Construction is also likely to be a big positive, with elevated levels of consent issuance expected to drive activity in most regions. Ditto the housing market, although impacts here are likely to weaken as price growth slows, turning negative in the second half of 2022.
"The potential for sharper price corrections is higher in relatively small markets like Southland and the West Coast. Conversely, smaller falls are possible in places like Canterbury and Otago, where gains to date have not been as strong."
The positive outlook for regional economies did not come without risk, Clark said.
"The most obvious of these relates to the new Omicron variant, and the potential for restrictions on economic activity and border closures once it reaches our shores. Other factors, such as persistent inflation, ongoing supply chain disruptions and labour shortages also pose downside risk."
Meanwhile, travelling Aucklanders were expected to provide a much needed boost to tourism reliant economies like Otago, he said.
With international borders also reopening, those regions were expected to rebound strongly next year.