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How HB weathers the recession ahead

Issues

Keith Newman06 May 2020

Around 7,000 jobs are likely to be lost as a result of the Covid-19 lockdown, with total earnings across the wider Hawke’s Bay region plummeting by around $380 million for the year, predicts analytics firm Infometrics.

Infometrics, engaged by Business Hawke’s Bay to slice and dice the details of the coming storm, expects we won’t be hit as hard as the rest of the country — with 6.2% decline in GDP compared to 8% nationally – but we are in for a rough ride.

Employment in Hawke’s Bay is expected to decline from 83,600 to 76,600 in the coming year; that’s 8.3% in the year to March 2021, most of that from Napier City and Hastings District.

Hastings economy is expected to drop -6.1% while Napier fares worst at -7.2% with low income households at the highest risk. Māori households will face the brunt of the storm, which will hit accommodation and food services, retail and wholesale trade and transport, postal and warehousing industries.

Infometrics suggests Central Hawke’s Bay (-3.8%) and Wairoa (-4.4%), with strong primary and food manufacturing sectors, are likely to contract least in the year to March 2021. CHB however will also continue to face the fallout from the severe drought that’s been hanging around for a couple of months.

Business HB CEO Carolyn Neville says our economy was riding high just a few months ago but now we’re “staring down the barrel of significant job losses, business failures, a large decline in regional GDP and lot of uncertainty”.

Positive preparation

Having the right mindset will be critical for the tough times ahead. “Staying positive, being able to adapt, and seeing opportunity where others might see obstacles will help deal with the immediate impacts and the recession that follows”.

While lockdown has forced businesses to adapt and make a lot of decisions quickly “to survive and minimise the fallout”, she urges every business owner to stay connected, seek support and look after their personal and team wellbeing.

Rob Heyes, senior economist at Infometrics says local leadership will be key to facilitating Hawke’s Bay’s economic recovery.

He believes the Matariki framework for economic, inclusive and sustainable growth and councils’ willingness to fast-track key infrastructure projects will help, along with supporting local communities through initiatives such as increasing supplier payment frequency in a bid to assist cashflow.

While an average of 78% of the workforce across the wider region have returned under Level 3, safe work practices including social distancing will continue to impact productivity.

Accommodation, food services, retail, wholesale, education and training, administrative support services, professional, scientific and technical services are still unable to operate at full strength.

Infometrics says primary production and food processing will be maintained by global and domestic demand for food, and health care and residential care will continue to be a major employer.

Unemployment is expected to rise to 8.4% in the March 2021 quarter, with the bulk of job losses in accommodation and food services (1453), retail and wholesale trades (1390).

Big hit on low skills

Across the board the impact will mostly be on low and semi-skilled (4226) and skilled, including sales assistants and salespeople, hospitality workers and other labourers.

In its resilience and vulnerability regional webinar on 23 April the debate continued about how long the economic impact of Covid-19 would last. The consensus was years, not months.

Brad Olsen, Senior Economist, Infometrics said that the shock of Covid-19 was bringing abrupt change to the economy. “It is the biggest hit to the economy since the Great Depression”.

While the primary sector provided a strong economic foundation, supported by our trading relationships with China and the weaker Kiwi dollar which made our exports more competitive.

While meat, wine and food exports into supermarkets continued, the supply chain of high value product into hospitality and food services was on hold for an undetermined period.

Forestry, among the first industries to shut down with export markets, particularly with China and Japan shutting down, was now starting to move again along with the flow of other previously non-essential goods back to the Napier Port.

Instead of competing for offshore business there was an expectation that internal competition would ramp up for trading across regions.

Regional tourism push

The loss of international tourism would also see a push for the new supercharged ‘don’t leave town ‘til you’ve seen the country’ campaign encouraging domestic tourism and competition between regions. Hawke’s Bay has decided to target Wellington.

The big risk in all of this is that discretionary spending will be at an all-time low and consumer buying power will generally be low with households adopting “a much more cautious spending pattern over the next few years, due to reduced hours, higher unemployment, and lower job security”.

Carolyn Neville says the market has changed so the challenge for businesses is to adjust to meet current needs while gearing for the future when the customers they once had may not be there or their trading patterns may have changed.

The tech sector had been projecting quite significant growth and had to pare back projections, although various contractors and staff are well prepared to easily work from home.

They’ll have to keep looking at whether their customers at the other end are still there and how they keep that connection, protect local and global markets and look at the strength of our supply chains, says Neville.

The region faces the opposite challenge we’ve had in the past: “Rather than thinking big, we’ll be encouraged to think small and that’s not just a message for tourism. We need to thinking neighbourly and locally to rebuild confidence.”

She says there are some silver linings including greater affordability of the region’s housing and the increase in remote working which are likely to be attractive alternatives to the high cost of living in larger urban centres.

“Skills development and retention will be key. With EIT we have a fantastic educational resource that can educate and train people with the know-how our businesses need.”

Re-training essential

She says the economy needs to be kept moving with as many businesses operating as possible and every effort made to keep people in Hawke’s Bay, including pathways for redeployment into other industries and retraining.

“Vocational pathways and micro-credentialing with on-the-job training will be vital as people look to retrain and upskill.”

Neville says the region is working together better than it ever has done previously. “We’re in a much better space than we were even two years ago as long as we keep working collaboratively.”

She concedes there are “hard yards in front of us”, but believes the resilience of the local economy, the productivity of the region, and “guts and passion” will pull us through.

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Keith Newman06 May 2020

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