Rural areas to carry NZ economy until lower interest rates filter through: Infometrics

Infometrics head Brad Olsen says metro areas had the biggest economic contraction last year, at twice the rate of provincial areas. Photo / RNZ

By RNZ

• Economic consultancy Infometrics says there is a gradual recovery this year and regions are faring better than cities.
• The prospect of record dairy payout offers a $19b economic boost.
• Employment will recover slowly and unevenly around the country.

The agricultural sector will probably carry the economy for a good part of this year, until lower interest rates filter through to boost spending and activity, the latest data shows.

Economics consultancy Infometrics’ latest look at regional economies detects tentative signs of recovery in rural areas lifted by strong prices for commodities such as dairy and meat.

“Economic activity remains lower than a year ago in many industries and across different regions, although there are signs of improvement showing through,” Infometrics chief executive and principal economist Brad Olsen said.

Olsen said metro areas had the biggest economic contraction last year at twice the rate of provincial areas, while rural areas managed slight growth.

“Stronger export returns across the primary sector are starting to support activity across provincial and rural New Zealand, with strong returns for dairy, beef and horticulture, and improving returns for lamb – although forestry returns remain poor,” he said.

A $19b payday

He said Fonterra’s forecast of $10/kg of milksolids payout would put $19.2 billion in farmers’ pockets, a 30% lift on the previous season, and that was being followed by strong prices for meat and horticulture.

“All in all, the primary sector is helping drive the start of the economic recovery.”

Olsen said tourism, too, was showing signs of recovery, but sectors such as construction and manufacturing would be lagging.

Similarly, jobs would remain soft and be one of the last parts of the economy to show growth, with some regions starting from a low point, such as Nelson and Gisborne, while Otago was the only part of the country to have jobs growth.

But improved spending, signs of life in the manufacturing and service sectors, and a levelling-out in job adverts were positive.

“These slight improvements reinforce expectations of shifting economic gears in 2025, as household spending is freed up and economic momentum is regained,” Olsen said.