Good Times Ahead for Auckland

By | April 26, 2011

21 April, 2011

The Auckland economy is heading in the right direction as the region benefits from low interest rates and a low exchange rate with the Australian dollar, says a leading economist.

The recession hit Auckland earlier and harder than New Zealand as a whole, but it was already out-performing the rest of the country in terms of economic activity through the last three quarters of 2010, said Goldman Sachs economist Philip Borkin.

Auckland is especially sensitive to financial conditions, which are at their most stimulatory since July 2009.  Mr Borkin said the city’s economy should be growing by between 3 and 3.5 per cent by the end of the year.

Growth over the entire year could average around 2.5 per cent, compared with the 1.5 he expects for the country as a whole.

The out-performance is most notable in the housing market, with annual house price growth running at 1.8 per cent in Auckland currently.  Mr Borkin estimated that demand for housing in Auckland was growing by around 9000 homes a year while new supply, as reflected in dwelling consents issued, was just 3600.
“… It is quite possible house prices could be rising by around 5 per cent a year by the end of the year” said Mr Borkin.  That would make people feel more comfortable about their financial situations and boost consumer spending, Mr Borkin said.

When combined with a boost from the Rugby World Cup, he estimated that would underpin growth in retail sales in Auckland of 2.1 per cent over 2011 in real terms.

Mr Borkin also said the Reserve Bank would have to set monetary policy on a national basis, suggesting it would be the New Year before it raised interest rates.