Regional confidence drops on dairy woes

New Zealand regional economic confidence plunged in the March quarter, with pessimism driven by the economic impact of weak dairy prices, partly offset by stronger tourism.

The Westpac McDermott Miller Regional Economic Confidence Survey showed decreased optimism across all regions except Gisborne/Hawke's Bay in the first three months of 2016.

Westpac industry economist David Norman said the downturn had been expected but was a little larger than expected in non-dairy centred regions like Otago, Northland and the Bay of Plenty.

The survey balances households expecting good or bad economic times in their region over the coming year as a percentage of households in that region, with a positive number indicating more households have a good economic outlook. It was conducted from March 1 to March 11, and sampled 1,554 households.

Dairy-exposed regions were increasingly negative, with Fonterra Cooperative Group cutting its forecast payout to dairy farmers by 25 cents to $3.90 per kilogram of milk solids on March 8.

Southland's mood dropped 38 percentage points to a net 22 percent of respondents negative about the region's economic outlook. Taranaki/Manawatu-Whanganui fell 31 points to net 22 percent negative, and Waikato lost 18 percentage points to net 14 percent negative.

"After a short period of better dairy auction prices bringing some positivity into residents' minds leading into the December survey, those gains have been reversed," Norman said. "Once again, dairy prices are languishing, and the revised payout forecast is weighing on people's minds."

Sentiment also soured in non-dairy exposed regions, with Otago dropping 25 points to a net 11 percent positive, and Northland shedding 6.9 points to net 16 percent negative.

"Some of the variation may be explained by wider margins of error, especially for smaller regions, but there is little doubt that people's views of their region's performance are mostly weaker," Norman said.

Gisborne/Hawkes Bay improved 19 percentage points to net 33 percent positive, rising for the sixth quarter in a row. Norman said tourism and horticulture growth had begun to flow through the region.

Urban centres remained upbeat, with Canterbury down 3.9 percentage points to net 21 percent positive, Auckland dropping 6.5 points to net 15 percent positive, and Wellington falling 7.8 points to 20 percent net optimism.

Norman said there was still a lot of justified positivity in Canterbury, with strength in construction and tourism, while Wellington's house prices and population growth pointed to a boost in confidence in the capital.

The most optimistic region remains Bay of Plenty, with a net 35 percent of respondents upbeat in March, although confidence fell 6.3 points from December. It's been the most positive region for four consecutive quarters, with tourism booming and less exposure to dairy.

(BusinessDesk)