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Overview
Christchurch has benefited from a sustained period of real economic growth over the last four years. Despite the more difficult trading conditions facing local businesses over the last 12 to 18 months, the Christchurch economy has continued to grow, if at a somewhat slower rate than in previous years.
The strength of the City’s economy is built on it’s association with the large rural economy of Canterbury, its export orientated manufacturers and substantial involvement in tourism. These factors combine to provide Christchurch with a robust commercial sector which is strongly influenced by international trading conditions. As a consequence the local economy appears to decline or recover ahead of many other areas of the country.
The local economy is currently approaching the trough in the present business cycle. The export lead recovery of 1993 - 1994 which was characterised by high levels of business investment has given way to a domestic, consumer driven period of slower growth. This shift in the driving force behind this period of expansion has lead to increased inflationary pressures particularly in the housing market. The Reserve Bank’s attempts to control mounting inflationary pressure over the last 2 years have resulted in higher real interest and exchange rates. After a considerable lag, these measures have now had an effect on the rate of economic growth.
The uneven impact of this period of tight monetary control has been well documented. Many export orientated businesses, such as manufacturers, farmers and other primary producers, have noted the detrimental effect high exchange rates have had on their international competitiveness and profitability. This burden has been borne by exporters despite the negligible inflationary pressure arising from these industries. In contrast, the construction and housing markets, which have been the source of much of the recent inflationary pressure, have proven surprisingly resilient in the face of increasing real interest rates. Despite the difficulties experienced during this period it is believed the Reserve Bank is regaining control of the inflationary outlook.
There are now a number of signs the local economy is poised for a resurgence in growth. These include increased business confidence at a national level over recent months and improved profitability in manufacturing. Commentators also believe the second round of tax cuts set for July 1997 are likely to proceed. Once current uncertainties regarding the shape of economic policy following the first MMP election are settled and inflationary pressures ease commentators believe the underlying economy is well positioned to take advantage of future opportunities for growth.
Overall the long term prospects for the City’s economy for the remainder of this decade and into the next century remain positive.