ANZ economists have questioned whether New Zealanders realise the downstream impact the struggling dairy sector will have on the wider economy as New Zealand recovers from the economic downturn. In ANZ's latest Market Focus, the economists pointed out the regions that led the economy's growth between 2003 and 2007 were all dairy aligned. With a falling Fonterra payout "too low relative to cost structures and debt levels," as well as falling farm prices, they question what effect these problems will have on the shape of an economic recovery:
Last week we canvassed through the NBNZ Regional Trends report (of economic growth across the regions) for the period from 2003 to 2007 (we remove 2008 as Auckland was in recession and it would bias the results heavily). We were interested in determining which regions led NZ.Inc over the period. So who were the top six? Taranaki, Waikato, Northland, West Coast, Canterbury and Southland (in that order). The common denominator across each: cows (yes even in Canterbury). The direct impact of the farming sector is widely acknowledged, but people do not seem to fathom the open or shut nature of the rural chequebook, and what the pressures in the dairy sector will mean for the agricultural service sector and townships. Even rural-aligned regional house prices outperformed cities over 2003 to 2007. This leaves us seriously wondering about moving towards an expectation of a "W" shaped cycle for the NZ economy, although we still see it as entirely consistent with our "bathtub with waves" view. Collectively, there seems a lot of talk about when (or whether) the NZD will return to trading off domestic fundamentals. We see the dairy sector as probably the most integral part of that wake-up call when it comes.