Drought takes toll on economic confidence

In the Bay of Plenty, confidence remained weak but had improved marginally over the past three months. Photo / Alan Gibson

The onset of drought conditions in the North Island has seen economic confidence plummet in many regions, according to a Westpac McDermott Miller survey.

The bank said economic confidence hit multi-year lows in Northland, Waikato, and Gisborne/Hawke's Bay, and fell sharply in the Taranaki/Manawatu-Wanganui region.

Outside these regions, economic confidence was mostly little-changed from three months ago.

The survey, which was conducted between March 1-10, had a sample size of 1582.

In Northland, economic confidence plummeted from already low levels, as dry weather hit an economy which was only just emerging from the after-effects of previous droughts.

The last time economic confidence fell to similar levels in the region was in late 2010 - another drought year, Westpac said.

Economic confidence in Auckland lost some of its recent shine. Even so, Auckland remained the second most optimistic region in the country after Canterbury.

In Waikato, responsible for about 48 per cent of New Zealand's dairy production, the mood turned for the worse, with confidence falling to its lowest level since March, 2009. The region is now the second-most pessimistic in the country after Northland.

"Drought has clearly hit local [Waikato] dairy farmers hard, with rising global prices providing little in the way of immediate comfort." Westpac said in a commentary.

In the Bay of Plenty, confidence remained weak but had improved marginally over the past three months. The Bay of Plenty economy continued to face a range of other challenges, including the Psa blight, which has devastated kiwifruit farmers, high unemployment, and the high New Zealand dollar.

In Gisborne/Hawke's Bay, confidence plunged back into pessimism as dry weather hit farmers hard. Economic confidence is now the lowest since late 2008.

Three months ago, the Taranaki/Manawatu-Wanganui enjoyed one of the highest levels of economic optimism in the country. Drought has now eroded much of that lead, with only Waikato suffering a bigger decline in economic confidence, Westpac said.

Economic confidence in Wellington remained pessimistic, but has improved for the third time in a row. In the far south, Southlanders' economic confidence saw by far the biggest lift of any region, rising from deep pessimism back to cautious optimism. Southland has enjoyed good growing conditions and was benefiting from the surge in dairy prices.