Business confidence in Southland region is at rock bottom, taking a 7-point hit over the quarter after news of the Tiwai Point aluminium smelter closure, according to the latest Westpac business confidence survey.

Westpac chief economist Dominick Stephens confirmed to the Southland App today that the survey of Southland businesses occurred between September 1-10, when the region was still in COVID-19 level 2.

The reason why Southland was in such a depressed mood was because two of the big three economic generators – international tourism and Tiwai – had taken a huge hit, leaving the region to rely on agriculture, he said.

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“As the smelter closure plays out, we expect Southland to be the one region with a large agriculture base that underperforms,” Mr Stephens said.

The smelter accounts for about 10% of the region’s gross domestic product and is the region’s largest employer, with at least 2,600 direct and indirect jobs are threatened by the closure. 

International tourism has disappeared from Southland, casting a long shadow over the fortunes of many business operators now competing for a share of the small domestic market.

Mr Stephens said the survey assessment was made before Prime Minister Jacinda Ardern announced on Monday that a lifeline would be thrown to Tiwai for the next few years.

He accepted the Labour Party’s commitment to a Just Transition for the smelter could have lifted the mood a little for some.

But the ongoing loss of international tourism meant he retained his assessment that Southland was the least confident region in New Zealand, with Otago and Auckland regions also feeling pretty close to rock bottom.

“I don’t think any individual politician has the scope to move the mood on the economy that much. It is more about the policies. Throwing Tiwai a life line for three to five years, when what we ask people is how do you think your provincial economy is going to be over the coming 12 months? Yeah, I think that would have lifted confidence,” he said.

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Mr Stephens said agriculture was resilient and faring well, but would not be enough to rescue Southland from being one of the weakest economic performers.

“I still think that tourism impact is going to be there for Southland. While the confidence picture will probably get better, I don’t think it is going to be pretty,” Mr Stephens said.

Mr Stephens agreed the new, unpopular freshwater regulations “would no doubt put pressure on farmers’’. 

“A lot of farmers in NZ are feeling under pressure due to society’s changing expectations around environmental stewardship and carbon emissions. What we have noticed from other surveys in past years, that despite overall fairly good agricultural conditions, we saw fairly low confidence at times, such as when we wound in towards the Emissions Trading Scheme. Farmers feared it could be an imposition upon them. Yes, that will remain something that will tend to keep a lid on confidence in agricultural regions.”

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House prices are rising in some places, but Mr Stephens has noted prices had recently fallen by about 8% in Central Lakes District. 

“We are distinctly seeing weaker economic data out of the Central Lakes region. I would expect that to percolate out over the southern portion of the South Island . . .

“Covid is going to impact the southern part of New Zealand the most. I am not surprised to see Southland, Otago and Auckland at the bottom of the heap this time, on confidence,” he said.