The drought put the kibosh on what was expected to be a good agricultural season.
The weak labour market and drought have contributed to the Manawatu-Whanganui region's drop of six places on the ASB Regional Economic Scoreboard.
The Manawatu-Whanganui region is placed 11th out of the 16 regional council areas in the ASB's December 2017 quarterly scoreboard which ranks economic performance.
"The weak labour market
remains the region's Achilles heel as the number of jobs fell over the year," the scoreboard commentary says.
"Meanwhile, the drought has put a temporary dent into what was shaping as a good agricultural season. Over 2018, we expect fortunes to improve on the back of otherwise healthy agricultural incomes."
The fastest growing regions gain the highest ratings and a good performance by the national economy raises the ratings of all regions. Ratings are updated every three months and are based on measures such as employment, construction, retail trade and house prices.
