Auckland city business and economy report 2008

Executive summary

Despite low overall growth, Auckland city's traditional growth leaders - the high value-adding sectors of finance and insurance, property services, business services and communication services - have continued to perform solidly.

Picture of skyscrapers and palm trees. Economic growth in Auckland city has been trending downwards since the immigration-fuelled peak of 2003. International economic conditions have been turbulent including the global "credit crunch" and generalised world inflation. The city's economy is estimated to have grown by only 1.1 per cent in the year to March 2008, considerably lower than the New Zealand economy as a whole (3.0 per cent).

External migration has been a major contributor to Auckland city's growth this decade. However, net migration has fallen considerably since its peak in 2003 and was slightly lower in the year to March 2008 compared with the previous 12 months.

Slowing migration and a reduction in the number of public sector non-residential projects contributed to the fall off in the construction industry. Slowing construction was the single largest contributor to Auckland's slower growth over the past two years.

Auckland city's labour market has been softening, with unemployment rising to an annual average of 4.2 per cent in the March 2008 quarter, from 3.8 per cent in the same quarter in 2007. Total employment declined by 0.5 per cent in the year to March 2008 after growing by 1.2 per cent in the previous year.

The Auckland city economy is forecast to grow by only 1.6 per cent in the year to March 2009 as many of the growth constraints of the past year will continue. Further falls in net migration together with persistently high interest rates will result in a continued decline in residential construction. High interest rates and falling house prices will dent consumer confidence and constrain the retail and hospitality industries. The New Zealand dollar is likely to remain relatively high, which will impact negatively on exports and limit tourism growth.

The outlook for the year to March 2010 is more optimistic, with Auckland city's economy forecast to grow by 2.4 per cent (compared to 2.3 per cent at the national level). Tax cuts will put more money into consumers' pockets as will lower mortgage repayments following a potential fall in interest rates late in 2008. Consumer confidence will be further lifted by a recovery in house prices. House construction will resume growing and non-residential construction will bounce back due to construction work ahead of the Rugby World Cup. Following interest rate cuts, the exchange rate is expected to weaken, which will support a recovery in exports and higher tourism growth.

Auckland's economy has underperformed relative to many of its international comparators over the past ten years. Auckland ranked in the middle of nine benchmark cities when measured according to growth in total GDP. On a GDP per capita basis, the city ranked 80th out of 116 cities, with populations over one million, from Western Europe, North America, Japan and Australasia.

Published August 2008