Over the past year we’ve seen both households and businesses becoming increasingly confident about the economic outlook.
This confidence is reinforcing expectations for firm economic activity over the coming year. In addition to firming confidence and activity, we’re also seeing positive conditions in the tourism and hospitality sectors, with high profile sporting events playing a big role.
Confidence in economic conditions has continued to firm through mid-2017. Our own Westpac McDermott Miller survey saw widespread gains in consumer confidence for the June quarter, rising to levels not seen since 2015. However, we’re seeing some divergence across regions. In rural regions confidence has firmed, supported by an improvement in commodity prices, mainly global dairy prices. On the other hand, Auckland and Canterbury have seen confidence ease, which could be a reflection of the slowing housing market and maturity of the earthquake recovery. Despite that, people are spending more on entertainment and this is one factor boosting business confidence.
On top of this, businesses are continuing to report strength in activity. Businesses in the construction sector are particularly upbeat, but we’re also seeing gains in other sectors like manufacturing, retail and agriculture. Importantly, firming economic activity and rising confidence have led to increases in hiring intentions. Workers are reporting strong gains in jobs availability and this is adding to their overall confidence levels. However, low wage growth remains a concern for the medium-term view of employment and consumer confidence, but has taken the back burner for now. Another issue facing businesses is the difficulty of filling in vacancies for many sectors that are short-staffed, but facing high demand. Filling in these vacancies will be critical to translate the growing confidence into economic growth, especially in sectors like hospitality and retail.
In addition to the more general strengthening in economic conditions, we’re seeing very positive results in the tourism and hospitality sectors. The tourism industry in New Zealand continues to boom with over 3.6m visitors over the past year, which is boosting spending in areas like hospitality, retail and accommodation. Strength in these sectors has been given a further boost by the Lions Tour, which saw widespread gains in spending across many regions. In addition, a major event like hosting the 36th America’s Cup in New Zealand would have benefits that echo beyond the event itself. The impetus for bringing forward major infrastructure projects like developments to the Auckland Waterfront and transport services are likely to boost economic activity and increase the demand for labour, for quite some time