Confidence draining in key dairy regions, says Westpac

Economic confidence in Northland improved but remained subdued, due in part to lower dairy prices.

Consumers in Southland and Waikato slip into pessimism as milk powder prices drop.

Falling milk powder prices have hit consumers' economic confidence in the key dairy regions of Southland and the Waikato, says Westpac.

Fonterra last year cut its farmgate milk price for 2014/15 to $4.70 a kg from $5.30 a kg, reflecting a decline in market prices and representing an estimated $6.1 billion reduction in farm income since the boom season of 2013/14.

"In New Zealand's largest and third-largest dairy exporting regions, economic confidence has come crashing down as lower payout forecasts have hit home," Westpac said in its latest regional economic confidence survey.

Consumer confidence in the Waikato and Southland had fallen back into pessimism for the first time since late-2012 and early-2013, when the Waikato was in the grip of drought and Southland was facing the possible closure of the Tiwai Point aluminium smelter.

In the Waikato, other signs of economic activity, such as electronic card spending, car registrations and building consents, had also lost their momentum in recent months. Given the importance of dairying for Southland's economy, the decline came as no surprise, it said.

Over the last six months the gloss had come off most regions, although optimists continued to outnumber pessimists in the three main centres, along with the Bay of Plenty, it said.

In Canterbury - the second-biggest dairying region - economic confidence rose in the quarter.

"Clearly, this is thanks to ongoing reconstruction activity, though Cantabrians' economic confidence has moderated from the dizzying heights of a year ago," Westpac said.

"That said, economic confidence has come off its peak at the start of the year, no doubt influenced by the weaker dairy outlook," Westpac said.

Economic confidence in Northland improved but remained subdued, due in part to lower dairy prices.

Aucklanders remained optimistic, but noticeably less so than earlier this year.

Confidence in the Bay of Plenty fell in the quarter but remained higher than in many other regions.

Further south, the Gisborne/Hawkes Bay region rose slightly in the December quarter, but remained well below where it was earlier in the year.

Economic confidence in Taranaki/Manawatu-Wanganui continued to slide but the fall was less severe than many other dairying regions.

In Wellington confidence fell for the second quarter in a row, but remained moderately optimistic.

In the Nelson-Marlborough-West Coast, economic confidence in the region plunged, with optimists barely outnumbering pessimists.

In Otago, confidence picked up a little but remained subdued.