Westpac expects housing prices and spending in cities to boost recovery

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A report from one of New Zealand’s biggest banks says major metropolitan areas are likely to boost economic recovery this year, and continued house price increases will play an important role.

Continuing house price hikes should boost spending and boast economic growth this year.
Photo: RNZ / Nate McKinnon

Westpac’s Regional Roundup predicts that spending activity on the back of soaring house prices in places like Wellington, Auckland and Christchurch will effectively close the performance gap with already high-flying rural areas.

The report showed that many rural areas, supported by high commodity prices and demand for goods, had not been severely affected by the economic downturn caused by Covid-19.

But regions exposed to foreign tourism, such as Auckland and Central Otago, recorded a greater impact on their economies.

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Westpac industry economist Paul Clark said Morning report regions with a traditionally rural economy functioned mostly at pre-Covid levels, including Bay of Plenty, Hawke’s Bay, Gisborne and Northland.

China’s economic strength during the pandemic had supported New Zealand’s regional exporters as commodity prices remained relatively firm.

“The economy in general has shown a pretty strong recovery and we think a lot of regions are showing a similar trend and these are really the regions that have a strong regional experience … we are talking about agriculture, horticulture and forestry ,” he said.

The large metropolitan areas of Wellington, Auckland and Christchurch, where service industries were significantly affected by the lockdowns, and Otago, dependent on tourism, had more catching up to do.

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However, the biggest gains expected this year are to be found in these major centers, which will close the gap with a further increase in house prices, Clark said.

“They are likely to gain a lot of ground and this is largely linked to the housing market, which we believe will perform well over the coming year and which will boost household spending in these areas, so more ‘between us. go to the stores and start spending. “

This week, economist Cameron Bagrie, of Bagrie Economics, urged the Labor government to strike a balance between the desire to achieve a strong economy and a social conscience, as failed home prices were preventing many from buying their first House.

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He said the Reserve Bank should be made to take into account the stability of house prices when defining economic policy.

Clark said a travel bubble proposal with Australia in early 2021 would be good news, especially for places like Otago, Southland and Auckland.

Regions are also expected to benefit the most from a gradual lifting of restrictions on travelers from other countries later in the year, although he believed the return to pre-Covid tourism dynamism remained somewhat distant.

“This is the main reason why we believe Otago will remain New Zealand’s worst performing region over the coming year,” he said.

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