South Island likely to be hardest hit in Covid-19 recession - Westpac report

The southern regions will be the most adversely affected by the severe economic recession, while Wellington and Auckland have the best prospects for recovery, a Westpac report is predicting.

Westpac Bank's regional roundup says all areas of New Zealand are facing a rough recession over the rest of the year as a result of the Covid-19 pandemic, but those that rely most on international tourism, such as Otago, are likely to be particularly hard hit.

Construction activity was expected to continue to slow, while house prices were expected to fall in all parts of the country.

Wellington had the brightest outlook, supported by an increase in government spending on services.

"The opening of public offices previously closed during the lockdown period and the return of public sector workers to their workplaces should also support retail spending, particularly in Wellington's CBD," the report says.

While Auckland had been hardest hit by the Covid-19 virus, it was set to recover faster than the rest of the country, with a broad-based economy and relatively low exposure to adverse global economic conditions.

"Auckland will experience a severe recession over coming quarters before posting a recovery," it says.

"Regions that are heavy on agriculture, forestry, and export manufacturing are also going to feel the effects of the global recession," the report says.

"Our expectation is that dairy, sheep and beef will be relatively resilient, while viticulture and forestry will struggle."

The rise of the digital economic, which had been boosted during the prolonged lockdown, was expected to drive economic growth in Auckland and Wellington.

"The best prospects for recovery lie in urban industries like services, distribution, and digital technology," the report says.

"ICT, software development, and online service providers have had a real leg up, and we think that bodes relatively well for Wellington and Auckland."

An increase in online shopping was expected to boost the economies of distribution hubs, such as Auckland, Hamilton, Palmerston North and Christchurch.

Regions most exposed to international tourism were all in the South Island so they would recover more slowly, Westpac chief economist Dominick Stephens said.