In a classic case of "don't shoot the messenger", dove-tailing economic messages from two of New Zealand's leading banks suggesting the region's economy had peaked last week drew flak from Hawke's Bay Regional Council chairman Rex Graham - Hawke's Bay Today delves deeper into our future economic prospects to see if those remarks were justified.

Graham, responding to the ASB's quarterly economic scoreboard rating for the region's economy dropping the region down seven places to 13th in New Zealand and a speech from Westpac chief economist Dominck Stephens in Napier - suggested the economists were "off the mark" when they revelled reasons why the region's economy, which has to date has been barrelling along nicely, had peaked.

Responding to the local commentary generated following his statements, Stephens said he was happy his presentation had got people talking, but added he would be sticking to his claims.

"I have noticed over my career that people are less likely to buy into our forecasts when we are suggesting that things will change. I encountered far greater scepticism back in 2011, when the economy was all doom and gloom but we were predicting a marked improvement.


"I'm glad that I stuck to my guns back then, because the economy did improve.

"The (local) commentary is along the lines of 'things are great right now'. I agree that conditions in New Zealand are currently strong, and that conditions in Hawke's Bay are especially strong – I emphasised that in my presentation.

"The thing is, economic conditions rarely stay constant.

"The key to my presentation was that I expect conditions to change. Some of the drivers of recent strength in the economy are waning – population growth, rising house prices, and construction activity. I expect that we will move into more of a mixed economy, where the positives of strong exports and government spending are balanced by the cooling housing market and slowing population growth.

"This move from positive conditions to mixed conditions will be noticeable."

Stephens' suggestions were foreshadowed just last month by the bank's chief executive, David McLean, who pointed out that the region's high house prices were a fundamental barrier to growth because they kept savings "locked up" in the housing market, rather than the sharemarket or a managed fund.

Westpac, with McDermott Millar, runs New Zealand's only regional confidence index. In the latest edition Hawke's Bay recorded a lift in confidence in the March quarter, and is the third most confident region in the country.

The report stated house prices are still expected to grow faster than the national average, but the pace of growth should slow as house price differentials between the region and New Zealand's major centres narrowed.


Stephens agreed that activity in the region was well up on the same period last year and far better than the five-year average.

"However, a moderation is expected in coming quarters."

The New Zealand Institute of Economic Research's principal economist, Christina Leung, paints a slightly more positive picture.

"For Hawke's Bay specifically, we still see quite a few positive factors which is expected to underpin its growth. We expect continued high inflows of international tourists will be a key contributor to growth in the Hawke's Bay economy over the coming years. Another positive is the growing demand for our pip fruit and stone fruit exports, which the horticulture-intensive region is well-placed to meet.

"At an aggregate level, we expect growth in the New Zealand economy to moderate over the coming years, but still remain fairly solid."

Although NZIER also forecasted that the Reserve Bank would raise the Official Cash Rate (OCR) - a move expected to increase interest rates - Leung said the effect of that on house prices would be "relatively greater" in Auckland.

"Demand for property should remain solid in the regions, reflecting the spill-over effects of strong population growth in recent years."

ASB chief economist Nick Tuffley said before the drop in ranking this month, Hawke's Bay had placed either in the top half or top three or four regional economies since about 2015.

"It's been quite a solid performance and yes, it is a case where we have seen a few areas were some parts have lost a little bit of momentum, compared to other parts of the country."

New vehicle registrations, consumer confidence and population growth were all below the national average but "in the grand scheme of things" with tourism, the housing market exports and construction (up 24 per cent for the March year compared to 9 per cent nationally) and tourism performing above the national average, the economy as a whole was not to different to the overall average.

He pointed out that generally, double digit percentage rises in house prices, like those experienced in Hawke's Bay, where price appreciation was growing faster than Auckland, tended not to be sustainable for very long before prices moderated.

With terms of trade - the relative value of exports compared to what is imported - at near record levels, Hawke's Bay was in a positive position.

"When we're looking ahead at that long term plan with the middle class in Asia growing and starting to consume the exports we are good at - that sort of environment is quite positive."

The long term future looked "pretty reasonable" but the challenge would be to balance out the issues of slowing population growth and looking hard at how the regions can eventuate the region's strengths and emerging tech sector to boost overall performance.