**Perhaps if we acknowledged that more, we’d cheer up and some of that positivity might cheer up Aucklanders a bit. **

**Daniel F **

A: Fair enough. There’s no doubt there are two quite different economic stories playing out in New Zealand right now.

Auckland and Wellington in particular are struggling and, when we look at the topline macroeconomic data for New Zealand, they are almost certainly dragging it down.

ANZ economists have just produced a really good analysis of that regional divide which I’ll dig into shortly.

But first a word or two in defence of my gloomy urban outlook.

Unfortunately, we can’t ignore Auckland and Wellington despite the fact that many people in other parts of the country would like to.

The two cities account for almost half of our population.

As ANZ economist Matthew Galt points out in his note, the South Island contributes only 23% of New Zealand’s GDP.

“A sustained national economic recovery will therefore also need a pickup in the economies of Auckland (38% of GDP), Wellington (12% of GDP), or the regional North Island (28% of GDP),” he says.

GDP doesn’t measure revenue, and it doesn’t just measure productive output; it measures market transactions, which are inevitably more concentrated around large populations.

It does give us a window into how much commercial activity is taking place in our economy over a defined period.

But it says nothing about accumulated wealth, debt levels, or asset values.

For example, a farmer paying down debt doesn’t show up as much in GDP (it’s not spending or investment), even though that might be part of a meaningful improvement in the region’s underlying financial position.

Anyway, there is no shortage of reasons why GDP is a flawed measure (it doesn’t count volunteer work, for example) but it is still an important indicator of economic health.

North-South divide

“The economy of the South Island has been much more positive than that of the North Island over the past two to three years,” Galt says.

The most recent GDP breakdown we can get from Stats NZ is for the year to March 2025 (it was released in March 2026, so we can’t expect another any time soon).

But while it is out of date, it paints a clear picture and has likely not changed dramatically given the ongoing export sector strength.

It showed Auckland’s annual GDP growth at 2.1% (my hunch is this will have declined) and Wellington at -0.1% (sounds about right).

Meanwhile, Southland grew 9.8% (highest in NZ); the West Coast 8.1%; and Canterbury by 5.3%.

The South Island average was 5.2% growth versus the North Island’s 2.8%.

Unemployment data for the year to March 2026 (we do get June figures today) also illustrate the divide.

Auckland had an unemployment rate of 6.6%; Wellington 6.3% (both above the 5.3% national rate). Otago at 3.6% was the lowest in New Zealand. Canterbury was just 4.4%.

ANZ also includes a useful chart showing employment growth by region (to March 2026).

The West Coast, Canterbury, Southland and Otago lead the way with employment growth of between two and 2.5%.

Auckland is almost dead flat, while Wellington, Northland and Gisborne are all going backwards.

It should come as no surprise to keen watchers of New Zealand’s economic fortunes that there is a correlation between those stats and house prices.

Since the market peak in late 2021, Wellington has seen the steepest fall (-29.1%); Auckland is next (-24.7%)

Canterbury, Otago and Southland have risen back above that late 2021 point to hit new median highs.

So what’s wrong with Auckland?

Galt suggests a few reasons.

A higher share of its economy is in interest-rate sensitive industries such as business services, construction, and non-food manufacturing, and a lower share is in exports and government spending, he says.

The higher level of Auckland’s house prices make housing wealth effects more potent, he says.

“Auckland’s house prices themselves have tended to respond faster to economic upturns and downturns than those in other regions.”

Recent low net migration has also weighed disproportionately on Auckland, given that it tends to be the preferred destination for new arrivals, he says.

“A pickup in the large Auckland economy (38% of NZ’s overall economy) must be a key part of a general economic recovery in New Zealand,” Galt says.

He points to a few positives on the horizon, although they don’t sound like quick fixes.

“A lift in net migration from its current low level is likely as New Zealand’s labour market recovers,” he says.

“Although rural and international tourism income supports Auckland less than it supports regional New Zealand, Auckland will still benefit to some degree as this income flows through the wider economy.”

And finally, it’s becoming more likely that Auckland house prices will “find a floor” as the house price to income ratio retreats further from its previous very high levels, he says.

Here’s hoping we do see an urban economic catch-up soon.

There’s every reason to expect the South Island’s economy to remain strong in the near term. That should buy more time for urban regions to close the gap.

But Galt warns of a “good as it gets” feel to the combination the agri sector has faced in recent years of high commodity prices, a weak Kiwi dollar and very favourable growing conditions.

“One has to acknowledge a risk that the gap may close partly from the other direction as well,” he says.

In other words: there are still reasons to be optimistic about the export sector, but we shouldn’t be complacent.

At some point we’ll see that cycle turn and at that point we’ll need the urban economy to be in much better shape, or we could be in serious trouble!

The great beer tax debate

Last week’s question about the difference in transtasman beer prices kicked off quite a debate.

I highlighted the different treatment of excise tax here.

Feedback from some readers suggested we have it right.

Trevor Mallard wrote to say he felt that cheaper booze to drink at home was fairer for many low-income people than effectively subsidising some hipsters’ night out in town.

He also warned of a slippery slope with regard to governments tweaking tax to manipulate social behaviour.

“I’m of the generation that remembers Muldoon manipulating rates in attempts to appeal to voting groups. The classic was a lowering of the rate on sherry when he wanted to appeal to older women.

“The argument for excise taxes is a health one and it should be blind to both alcohol type and place of consumption.”

I’m sympathetic to both these points but would note that the idea isn’t to make drinking prohibitive for poorer people.

It’s just that given what we know about harm reduction, it might make more sense if it was cheaper at a pub relative to a bottleshop.

Backing that argument – perhaps not surprisingly – was Brewers Association executive director Dylan Firth, who shared an op-ed article over the weekend.

“On a single glass the gap is small: about 98c excise on a 500ml New Zealand beer against roughly 84c on the Australian equivalent, closer again once the exchange rate is stripped out.”

But that a few cents a glass is not the point, he argues.

“It’s about the signal it sends and the relativity to what consumers might otherwise choose. Do they choose to meet a mate at the pub, drink a beer at home, or abstain altogether?

“Over time it reshapes which venues can compete, how often they turn tables, and where the margin ends up sitting.

“New Zealand is running the same experiment in reverse. The high relative cost of beer poured from a tap in a hospitality venue (on-premise) rather than sold off a shelf has helped to drive it from 40% of the market to 15% over the past 15-odd years.”

He notes that hospitality liquidations rose 49% in the past year.

That’s 399 small businesses that have failed and three times the average liquidation rate economy-wide, he says.

“Total hospitality sales value grew just 1.4% last year, against food-price inflation of 4.6%. While there are always multiple drivers of these trends, there is a clear one that the Government can address.”

Near beer?

Finally, here’s a quirky but interesting beer-related question ...

Q. Hi Liam, question for you. The price of beer conversation talked of the tax per alcohol level and keg vs bottles etc. My question: if alcohol content is part of the pricing differential, why is the cost of an alcohol-free beer still as high as a full-strength beer?

Thank you,

Jen G

A: Great micro-economic question there, Jen.

I’ve checked the price of alcohol-free beers on some supermarket sites, and you are right, the price difference is negligible – maybe a dollar or two per dozen.

So given there is no excise tax on alcohol-free beer, what’s going on?

Well, the first thing the brewers will tell you is that making a good quality beer is actually harder than making a traditional beer.

That’s because they have to brew a normal beer (to ensure it has the authentic flavour) and then they have to remove the alcohol.

In New Zealand retail, for mass market brands vacuum distillation is the most common process. The beer has to be heated under very low air pressure so alcohol evaporates at a cool temperature, protecting the beer’s flavour.

Some craft brewers do it another way, by making the beer with special “inactive” yeasts that cannot break down standard maltose sugars.

Either way, you are looking at added cost rather than reduced cost. Whether that is enough to justify the prices given a lack of excise tax, I wouldn’t like to speculate.

But one other relevant point is to do with the volumes and turnover of the relative products.

Companies can generally run a lower margin on high-volume products because of economies of scale.

Zero alcohol beers – despite growing rapidly in popularity – are never going to compete by sheer volume.

I’m speculating now, but my hunch is that alcohol-free beer drinkers don’t knock back a dozen in one session the way many traditional beer drinkers do.

**New unemployment figures today **

Forecasts are for the unemployment rate to land at 5.4% or 5.5% (from 5.3%) when the latest figures are released at 10.45am.

To put it bluntly, economists think the headline jobless rate is headed up, not down, so in the wrong direction.

That doesn’t necessarily mean hundreds more people are losing their jobs; the increase is likely a symptom of the labour force starting to expand again (the net migration is starting to pick-up again) but job creation is not yet strong enough to get ahead of that.

So it’s not all bad.

But it almost goes without saying that there will be some ugly figures buried beneath the headline rate.

Youth unemployment, Māori unemployment, measures of underemployment and underutilisation ...

Unfortunately, the worst may also be yet to come, with many economists picking the labour market won’t turn around until we are well into 2027.

The full labour market impact of the Middle East conflict would take time to appear in the data, ASB economist Wesley Tanuvasa said.

“The size and persistence of the Middle East cost shock remain uncertain, particularly given how fluid US-Iran developments are right now.

“The overall story is that the labour market remains soft, and Kiwi households have done it tough over the last economic cycle.”

Modest labour cost growth would help calm any RBNZ fears of a wage-price spiral, he said.

So that’s kind of good news too ... although not really if you’re a worker struggling to pay the bills.

You can read the full labour market data preview here.

And latest numbers will be live online at nzherald.co.nz, from 10.45am.

Don’t forget to check out the Herald’s new podcast, The Economy of Everything, with Liam Dann and Tamsyn Parker – thanks to CMC Markets.

Liam Dann is business editor-at-large for the New Zealand Herald**. He is a senior writer and columnist, and also presents and produces videos and podcasts. **

For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.