Are we a Ford Ranger hooning down the highway or a hatchback running on fumes? Maybe both, explains Emma Gleason.
There’s been a lot of talk about our economy going at two different speeds, with politicians, economists and media all pointing at proverbial lanes, signs and vehicles as we race to leave our recession behind. It sounds simple (fast vs slow?) but what does it actually mean, and is it accurate?
What’s this ‘two-speed’ thing all about?
Christopher Luxon has said New Zealand is going through a “two-speed recovery”, by which he means the rural economy is doing better than the urban economy as we sputter out of a recessionary period. It echoed what Dominick Stephens, Treasury’s chief economic adviser, said during a post-budget presentation back in June. “It’s an export-led recovery at the moment, reflecting a real two-speed economy”, with the regions doing “a lot better than the cities”. The big banks agree too. “It’s still very much a two-speed economy,” Westpac chief economist Kelly Eckhold said in August.
Everyone must be arguing about this, right – picking a lane?
Actually, no. Chris Hipkins agrees there’s a “two-speed economy”, and in a speech to the Queenstown Business Chamber last month said the government’s policies around things like rates, insurance levies and electricity prices were contributing to increasing costs. People who were worse off were finding themselves even more so, as other sectors and demographics sped forward, he said.
Media commentators seem to share the opinion that different parts of the country are going at different speeds, with National Business Review calling the contrasts “stark”, and the Herald’s Liam Dann explaining the diverging lanes at length. “A gap is opening between the pace of recovery in provincial regions, which are feeling the direct flow from high export commodity prices, and the urban areas, which are suffering from low confidence and extended property market contraction,” he wrote after the Reserve Bank lowered the Official Cash Rate to 3%, a “one-speed” lever to aid the recovery.
So who is hooning along then?
It depends where you look. Primary industries in the regions are doing well, thanks to high commodity prices and strong exports – total red meat exports have been on the rise, farmgate milk prices have seen a record payout – which has led to a bump in rural incomes.
Urban centres are another story, with consumer spending (a big part of their pie) down and living costs continuing to rise. “It’s tough in the cities across New Zealand at the moment, particularly Auckland, Wellington,” Luxon said last month.
The job market is rough this year, and both those centres have endured cuts across private and public sectors. In Auckland the unemployment rate is 6.1% (compared to a nationwide average of 5.2%) while the property market has crashed into a ditch after going way too fast.
When you’ve got less money coming in and things are more expensive (food prices are up 5%, mince is costing 19% more than a year ago, and butter’s seen Formula 1 levels of price propulsion with a 42% increase), the belt gets tightened. “Consumer spending remains modest, especially for discretionary items,” Westpac chief economist Kelly Eckhold has said, and we’re less likely to go out to restaurants and shops.
Retail and hospitality sectors have been vocal about the challenges, and there have been high-profile closures in the big cities. “Operators are experiencing falling revenues at the same time as costs for wages, food, rent, utilities and compliance continue to climb,” the Restaurant Association said at the end of August. It’s something felt most strongly in the central business districts, where office occupancy hasn’t returned to pre-pandemic levels.
There have been myriad infrastructure challenges and road cones everywhere. Patient Aucklanders are also pinning their hopes on the City Rail Link, which has been under way since the project broke ground in 2016, and promises to help revitalise the city.
Some rural regions have stalled too. Thousands of jobs are disappearing as mills, plants and meatworks are closed around the country in towns like Kawerau, Ohakune and Timaru, and as Anna Rankin reported from Tokoroa and the Kinleith Mill, the causes and effects are complex, hugely impacting regional economies. In some parts, provincial populations are ageing quickly: “times are really tough” in Buller, where 26.6% of people are over 65 (the national average is 16.6%).
And while things are objectively hard in Auckland and Wellington by many metrics, the two regions also have the highest median household incomes in the country. (Though 8.8% of Auckland households are deemed “crowded”, 2.8% severely so.)
Christchurch: officially hooning (Photo: Getty Images)
All right then, is it the Mainland pulling ahead?
Luxon reckons the South Island is “on fire” (in a good way), calling Canterbury the “sharp end of the spear” during a recent visit to Christchurch, where the region’s GDP growth has overtaken the national average. Queenstown appears to be speeding ahead too; the hospitality sector is up 13.4% and the unemployment rate is 1.75%.
“Everything just gets better the further you go south,” Kiwibank said in July of the regional divide. The bank’s economic heat map had Southland and Otago as the country’s best-performing regions (though both were far from searing, registering 5/10 compared to the tepid national average of 4).
Up in the North Island, “Taranaki, Northland and Gisborne are going backwards,” Kiwibank’s chief economist Jarrod Kerr told the Herald. And with a third of New Zealanders living in Auckland, what happens there has an outsized impact on the country’s populace.
Well, since we’re talking speed, what about the actual roads then?
Good question. According to ANZ’s Truckometer – yes, this is an actual thing – heavy traffic, a production indicator, is up by 2.8% on last year, while light traffic, a consumer measure, is up too, by 0.9%. Combined, they’re considered a “real-world proxy for economic activity” and a barometer of momentum. So… traffic is good? Or bad? Either way, the government’s Accelerate NZ policy suggests that if we could only drive a bit faster we’d be more productive, therefore economically better off.
OK, back to the metaphor. Is this a new thing?
Semantically, no. “Two-speed” economies were a hot topic back in the early 2010s. There were “fears” that Australia had one, due to the mining industry “eclipsing every other productive sector”, and compared to what was happening across the ditch, some felt New Zealand might as well have had the hand brake on given our “no-speed economy“.
In 2012, New Zealand’s racing engines had different rankings, with economists concerned about an overheated Auckland housing market and struggling regional economies.
In 2013, with our own “terrible two-speed economy” chugging along fitfully, Labour’s David Parker was pointing out the inequity of property investment. “We’ve got this tax bias, which means that someone can own 10 houses and pay no tax on the profits. That tax bias which favours residential rental investment over other forms of investment both harms the economy and drives up house prices.”
With a zooming property market, two years later, we were still grappling with dual speeds of economic success, and analysts flagged the imbalance of “strong domestic demand offsetting a weak external sector”. Locally, retail, labour and home sales were robust, while exports struggled, particularly the dairy industry.
Jump to 2025, and Chris Hipkins was telling the business luminaries of Queenstown that “we can’t get rich as a country just by buying and selling houses from one another”, even if some want another hit. (The average house price in the Queenstown-Lakes District is now $1.6m, compared to around $880k nationwide.)
So when are we shifting gears?
Basically we have one cash rate and two economies. The Reserve Bank can only set one OCR – which it did last month, cutting it from 3.25% to 3% – even when the economy is running at two speeds, meaning that it has to balance rising inflation with a sluggish economy.
The economic growth in the regions and South Island is expected to expand across the rest of the country. “The trouble is that measuring how long it will take to flow to the cities is not an exact science,” according to Dann, who pointed to indexes on manufacturing (up) and services (down), and questioned the impact an ageing population – “a chronic modern issue” – had on productivity (fewer people in the engine room), which has been outstripped by other countries (it’s 40% less than places like Sweden).
Business Desk’s Dileepa Fonseka has cautioned against pinning too much hope on strong commodities improving the wider economy. “If we are counting on a rural tide alone to lift all boats, NZ could be sorely disappointed.”
Fasten your seat belt, this all feels a bit like spaghetti junction at rush hour.