Consumer spending as a measure of confidence
Economic data shows consumer spending last week in New Zealand was up 10.08 per cent on that week a year ago (4.4 per cent increase in the Auckland region over the same period; see Figure 1). Consumer spending makes up 60 per cent of the New Zealand economy, so this is a good indicator of economic activity and recovery.
Figure 1: Marketview Weekly Consumer Spending Series as at 9 August 2020
Source: Marketview, 9 August 2020. The BNZ Marketview Consumer Spending Series provides a measure of national consumer spending trends in the core retail categories (excluding fuel). It is based on the monthly credit and debit card spending of BNZ customers. It includes GST, but excludes other forms of electronic transactions such as overseas cards, gift cards, corporate and fuel cards. Numbers reported are actual values and volumes, i.e., not seasonally or inflation adjusted.
This is in direct contrast to the United States, where consumer spending decreased by 8 per cent compared to January 2020, see the report here
Central government swift to respond to the current change in public health status in Auckland
Auckland’s economy has a disproportionate knock-on effect for the rest of New Zealand’s economy, as expenditure by Aucklanders has been replacing that of international visitors in recent months.
A central government response of a wage subsidy extension, leave support, and now a resurgence wage subsidy has been implemented to support ongoing domestic business and consumer activity.
In addition to this, the Reserve Bank of New Zealand has created a Funding for Lending Programme (FLP), which will see the Reserve Bank cut the Official Cash Rate to negative levels and then lend its own money to banks at around zero per cent so they can cut interest rates.
SMEs (small to medium enterprises) with between one and 19 employees make up 97 per cent of businesses in New Zealand, and often those SME owners secure lending for business working capital against their homes. Lower interest rates from banks on this home lending could provide another cost saving for these SMEs.
Credit rating agency Standard & Poor’s has affirmed New Zealand’s ‘AA+’ sovereign rating and maintains an optimistic outlook for economic recovery over the medium term. It believes the extra government spending during the coronavirus crisis will be temporary, rather than structural. While it expects government debt to remain elevated for some years, Standard & Poor’s forecasts the government’s budget deficit will peak at about 8.5 per cent of GDP next year before narrowing to about 3 per cent.
International investors still confident in Auckland
International investors are still moving ahead with their investments into Auckland this year, with some notable examples including:
Shinsei Group from Japan purchased UDC Finance from ANZ Bank for $762m.
Microsoft are constructing their first data centre in New Zealand in Auckland for $100m.
Made Group are progressing quickly with their $1bn Auranga development, building 2650 homes to house up to 7000 people.
Precinct Properties has opened its 18,000m², $1bn Commercial Bay centre in downtown Auckland.
Costco and IKEA developments are underway.
Amazon Studios and Netflix are filming multiple-season shows here in Auckland.
International and local investors are also continuing to provide follow-on investment into local New Zealand start-up companies. The proportion of offshore funding in local start-ups has grown from 0 per cent in 2006 to 23 per cent in 2019(Figure 1).
Figure 1: Growth in total funding received by New Zealand start-ups, 2009–19
Andrew Bascand, Managing Director of Harbour Asset Management here in Auckland, has noted that New Zealand publicly listed companies moved to protect future growth and value by quickly addressing balance sheet concerns for some firms through equity raisings.
‘It is also the case that balance sheets look stronger than they did prior to the GFC (Forsyth Barr recently published a comparative study), placing companies generally in a stronger position to withstand COVID-19-related hits, and the overall market is also stronger with larger KiwiSaver funds providing some stability to the capital markets.’
Investors can find investable opportunities in several Auckland-based industries, such as green economy, technology, building and infrastructure, food and beverage, film studios and tourism. These links provide an overview and insight into sectors of focus:
- Invest Auckland website list of current opportunities
Solid economic fundamentals
David Norman, chief economist at Auckland Council, comments: ‘The economic fundamentals in Auckland were solid going into the pandemic, and the actual economic downturn is largely the result of decisions to trade off economic activity against saving lives and not overwhelming health systems. This means that as New Zealand gets the virus under control domestically, which it has done, we can expect a resurgence in economic activity. It will help that New Zealand’s two biggest trading partners – China and Australia – are also economically recovering rapidly from the pandemic.
Figure 4: GDP Growth in Australia and Gross Output levels of building materials and electricity gerneration required for their manufacture in China show a recovery to pre-COVID levels.
Source: Reserve Bank of Australia, August 2020
Health confidence should be high. Health officials have by and large done excellently at containing COVID-19 here. The learning for government from the Christchurch earthquakes is that going hard and early applies to both the lockdown to save lives, and to getting going again afterwards.’
New Zealand government investments for fiscal stimulus
Central government stimulus funding into infrastructure and construction projects, the tech sector, food and beverage projects and green economy initiatives will enable a faster recovery from lockdown impacts. The New Zealand government‘s stimulus package is one of the largest in the world on a per capita basis representing 4 per cent of GDP. For a summary, read Starting again: The scale of New Zealand’s economic recovery from COVID-19 lockdown published by Stuff.
The government’s fiscal strategy in the 2020 budget aims to inject $190bn of stimulus over five years, in comparison to the $42bn originally planned in the Half Year Economic and Fiscal Update in December 2019.
Net core Crown debt will rise from under 20 per cent to a peak of 53.6 per cent, close to record highs from the 1990s. Notably, over the next five years there is an additional $50bn of spending expected, with $39.3bn yet to be allocated, bringing the COVID-19 spending package to $61bn over the five years. The strategy so far is about frontloading the spending to support households and businesses. For now, we have seen an eight-week extension to the wage subsidy scheme (albeit with stricter conditions than the original 12-week scheme), an initial $3bn allocated to ‘shovel-ready’ infrastructure projects, funding for state housing, and job creation schemes to help pivot workers from sectors highly exposed to COVID-19.
Domestically, the Treasury is forecasting unemployment to peak at under 10 per cent by September 2020 and to bring it back down to pre-pandemic levels of 4.2 per cent in two years. Reserve Bank liquidity and relaxed loan-to-value restrictions will help.
The Reserve Bank of New Zealand in its May Monetary Policy Statement (MPS) came out swinging. It had earlier signalled the Official Cash Rate (OCR) was likely to remain at 0.25 per cent until early 2021, but in the MPS expressed a willingness to take the OCR negative if necessary. The MPS also set out an extension of the Long-Term Asset Purchase (LSAP) programme from $33bn to $60bn, consisting of New Zealand Government Bonds, local government bonds and inflation-indexed bonds.
Investors can anticipate further fiscal stimulus from central government from their as-yet undisclosed plans for that $39.3bn government expenditure.
Upcoming infrastructure projects
Six of the 12 shovel-ready infrastructure projects targeted for imminent government stimulus funding, listed below, are located in Auckland and will generate a total of 765 new jobs into the Auckland region immediately.
1. Unitec – Phase 1 – high-density housing on the Unitec site in Waterview, generating 250 jobs.
2. Papakura to Pukekohe rail electrification – this project aims to extend Auckland metro services south to Pukekohe, providing South Auckland with increased lower-emission transport choice (85 jobs).
3. Northern Pathway – a cycleway and walkway between Westhaven and Akoranga in Auckland. This project aims to create a safe and usable active transport corridor for the North Shore, enabling an increase in the number of people cycling for commuting and recreation (50 jobs).
4. Papakura to Drury SH1 roading upgrade, and new walking and cycling facilities to improve highway access and safety – this project aims to respond to population growth and provide transport options for people in South Auckland (up to 350 jobs).
5. Britomart East Upgrade – upgrades to Britomart station to ensure the City Rail Link project can operate at full capacity once services commence (30 jobs).
6. Papakāinga Network Development – the delivery of Papakāinga in Pt Chevalier will support the government to provide up to 120 dwellings. It is being delivered by Māori developers with support from Te Puni Kōkiri. Will help retain and expand the existing workforce.
Immigration and smart borders
Globally sourced, highly skilled talent and international students will continue to be attracted to Auckland, particularly in consideration of New Zealand’s elimination approach to COVID-19. Immigration NZ are continuing to develop smart border capability to maintain and protect this status, and in the meantime migrant visa interest in New Zealand is high with various visa categories for investors.
Find out more
Contact investment specialist Suzanne McKinnon to learn more about investing in Auckland, New Zealand
DISCLAIMER: This article provides general information on potential investment opportunities in Auckland and is not intended to be used as a substitute for financial advice. The views and opinions expressed are those of the relevant author, and do not necessarily reflect the views of Auckland Tourism Events and Economic Development. Auckland Tourism Events and Economic Development disclaims all liability in connection with any action that may be taken in reliance of this article, and for any error, deficiency, flaw or omission contained in it.