Despite ‘more meaningful economic gains’ across most regions there’s still a divide between the North and South islands, Infometrics principal economist says

The economic divide between the North and South islands continues despite more meaningful economic gains across most regions, economic consultancy Infometrics says.

Infometrics' principal economist Nick Brunsdon says “it’s really clear" the mid and lower South Island is recovering faster, and almost uniformly, than the rest of the country, particularly the North Island. His comments come as Infometrics releases data from its latest monitoring of regional economies.

Provisional estimates from Infometrics’ September Quarterly Economic Monitor show economic activity increased 0.9% in the September quarter. But it was down 0.5% over the 12 months to September.

For the June quarter, data from Infometrics found underlying quarterly economic activity rose 0.6% but was down 0.8% over the 12 months to June compared to a year earlier.

Brunsdon says even metro areas are starting to recover, gaining collectively 0.7% in the September quarter, “although this recovery remains slower than provincial and rural areas”.

Two-speed economy

The economic divide has been labelled a multispeed economy or a two-speed economy by the likes of Prime Minister Christopher Luxon and by the Acting Governor of the Reserve Bank, Christian Hawkesby, at August’s Official Cash Rate review press conference.

At the time, Hawkesby acknowledged it felt like a two-speed economy - when different parts of a country’s economy feels like it’s growing at different rates.

“There’s always different sectors, industries, regions feeling different depending on the environment we’re in.

“So it’s not unusual that we’re in a multispeed economy, but it is very pronounced at the moment between Wellington and Auckland, and the rest of the economy,” Hawkesby told reporters at the time.

‘A further distinction’

Brunsdon says “our cities are much more internationally connected. They’re much more reliant on the likes of professional services and construction, and those areas aren’t going so hot at the moment”.

“We have started to see a turnaround in consents but that’s very early and those are big employers for the cities and they’re just not humming at full speed.”

Brunsdon says the flipside is that the primary sector is making great returns, benefiting agricultural regions.

“But that’s not as much of a benefit to Wellington and Auckland.”

Asked why there continues to be a contrast despite there also being farming communities in the North Island, Brunsdon says it comes down to the way you slice and dice.

Using Waikato as an example, Brunsdon says there are quite different stories going on.

“If you look at somewhere like Waipā, their GDP (Gross Domestic Product) is up 1.8%, Hamilton is up 0.9% which is still not bad.”

“That does show the benefit there but in many ways, as a kind of aggregate grouping, the Waikato can be quite metro dominated and in the past few years, construction was a big part of their economy,” Brunsdon says.

That pull back in construction does put a dent in the region, he adds.

Dairy payout boost, construction weak

Brunsdon says strong primary sector returns are driving economic recovery for regional New Zealand.

“Fonterra continues to forecast a strong dairy payout midpoint of $10 per kilogram of milk solids. Even if this figure falls, as the latest Global Dairy Trade auctions imply, farmers would still wind up with the second-highest payout on record."

“Returns for beef and lamb have increased too – at the expense of consumers buying mince – but boosting returns for dry stock farmers. Kiwifruit and apple growers are also earning a higher return on elevated export volumes,” Brunsdon says.

Infometrics data shows over the year to September, construction sector activity “remains challenged” and non-residential consent values are down 1.9%.

But there was some improvement for residential consents, which rose 3.6%, and Infometrics says there’s some lift in professional services activity too.

With some metro areas showing signs of recovery, Brunsdon says they are towards the “back of the pack,” but did turn positive this quarter.

“That pick up in building consents is one of the key factors. Professional services activity jumped up quite a bit too - that was one of the key things that had previously dragged them down.”

Weak migration not helping cities

But in terms of why cities are where they are, Brunsdon pointed to population growth.

“Population growth is at a very low level. If we exclude the Covid affected periods, we’re back to 2013 population growth.”

Population growth is normally a key driver for metro areas, Brunsdon says.

“When things are really humming, you have a lot of people moving in, migrating in, buying houses … stimulating things. And that’s not really happening for those metro areas at the moment, which is part of why they can’t grow at the same rate that they were a couple of years ago.”

Infometrics data shows employment has increased across the five regions of the South Island this quarter, led by the West Coast which grew 1.6%.

But nationally, employment dropped 0.6% and in metro areas, it fell 0.8%.

Brunsdon says while there’s been a lift in employment in the likes of Otago and Southland, overall job losses continuing meant unemployment edged up to what Infometrics expects to be a peak of 5.2% on average over the September 2025 year.

"We expect employment will be one of the last indicators to recover," he says.

In contrast Infometrics data found employment fell 1.7% in the June quarter, with Auckland and Wellington bearing the brunt of job losses. Southland, at the time, was the only region to record employment growth with a 0.2% rise in the June quarter.

Consumer spending

Brunsdon says despite some of these lifts, consumer spending nationally is still really weak even in places like the South Island which are “hot.”

Generally, people are still holding onto that money, he says, and even if money is coming in or they’re refixing onto lower mortgage rates, people are saving it and being cautious.

“It’s interesting - all those factors you might have expected would start to tip up consumer spending … people are still playing it pretty safe.”

“I think everyone gets a little bit scared by the anecdotes in their personal and professional networks of people that are out of work. So I think that shakes the psyche a little bit in terms of that more cautious spending behaviour," Brunsdon says.