AN analysis of the Hawke's Bay economy shows the region suffered more in the recent drought than the rest of the country - but the outlook is bright.
The Infometrics report reveals growth in economic activity in Hawke's Bay slowed to 1.1 per cent in the year to June, down from growth of 3.5 per cent a year earlier.
"Drought conditions throughout the latter stages of summer reduced economic activity in the region by pushing up farm input costs and dragging down underlying production," the report said.
It estimated primary production accounted for 12 per cent of the Hawke's Bay's economy, compared with 5 per cent for the national economy.
"The wider effects of the drought on the local economy were profound."
Economic activity would have fallen further but for "surprising strength" in some parts of business investment and household spending, as well as strong demand from China for New Zealand logs. With the falling economic growth the labour market also suffered. Hawke's Bay's unemployment rate rose to 8.3 per cent in June, from 6.9 per cent for the previous year, leading to a 9 per cent increase in unemployment beneficiary numbers.
"Even so, the region's labour market is in better shape than it was immediately following the Global Financial Crisis and 2008/09 recession. Furthermore, an improving domestic economic outlook is likely to increase hiring intentions by businesses in the Bay over the coming year."
The report said despite an increase in real estate activity over the past year, with house sales and prices rising, residential building consent numbers continued to fall.
"Interest in home building remains subdued, as the price of existing homes in Hawke's Bay relative to underlying building costs remains well below its 2007 peak.
It is unlikely that residential building activity in Hawke's Bay will pick up measurably until there is a sustained increase in house prices." Fonterra's forecasted milk payout, recovering wine and dry-stock prices should boost spending confidence over the coming year. "Even so, the legacy of the drought will still constrain output from sheep and beef farms this season, as the process of rebuilding stock numbers takes time."
Infometrics economist Benje Patterson said regional GDP estimates were derived from IRD taxation data "which helps capture both underlying employment levels and the intensity of activity in various industries throughout the region".
Hawke's Bay Chamber of Commerce Wayne Walford said the report highlighted the need for growth strategies that minimised the impact of natural or external events, developed business in the region and built confidence.
"The Blossom festival is a great way to celebrate the unique greatness of the region and build a Hawke's Bay pride that helps draw investment and entrepreneurial opportunities here.
"The 150th A&P Show is another event that celebrates our innovation and expertise within the primary sector. Changing complacency into positive pride and marketing for the region is our greatest opportunity.
"Let's take the lead and develop more strategies and initiatives like the Ruataniwha Water Storage Scheme to control our destiny."