Survey reveals why
Consumers are miserable and not expecting things to improve as the economic environment challenges continue, a new survey has revealed.
ANZ’s latest Consumer Confidence survey reveals COVID is a likely factor and consumer confidence has fallen sharply, despite rapidly tightening labour markets, synchronised with a sharp increase in inflation and rising interest rates.
“Weak confidence for New Zealand’s outlook means there is a softening outlook for household spending, but there is still (just) enough support out there for household spending to not go backwards,” said ANZ economist Finn Robinson (pictured).
“The pessimism we’re seeing in consumers is a key reason for our expectation that after a fourth 50 basis point (bp) hike in August, the RBNZ will return to 25bp hikes and will then pause hiking after November (with a peak official cash rate of 3.5%).”
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Robinson said signs of slowing demand should be clear by then.
“However, fighting inflation remains the name of the game and the RBNZ won’t stop until they’re convinced they’ve done enough to bring inflation back to target,” he said. “Consumer confidence is outright recessionary.”
Robinson said while the key stresses and strains for businesses in the New Zealand economy primarily related to an inability to keep up with strong demand, a very different story was being told by the steep deterioration in consumer sentiment.
“Barring the first lockdown in 2020, consumer confidence has never been this low since the data started in 2004,” he said. “It’s worse than during the depths of the GFC, a period characterised by massive uncertainty, rising unemployment and a shrinking economy.”
Robinson said the forward-looking measures tended to be pretty glass-half-full on the whole.
“After the GFC, for example, we saw a rapid improvement in consumers’ expectations for the future,” he said. “That makes sense as you have just been through a massive economic shock, so you’d expect things to get better (or at least, not be able to get much worse).”
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Robinson said New Zealand currently had the lowest unemployment rate since official data began 18 years ago.
“Over history there’s been a strong negative correlation between confidence and unemployment,” he said. “Not surprisingly, when unemployment is falling, confidence tends to increase and vice versa. But not in 2022.”
He added that New Zealand was now dealing with the consequences of an overheated housing market and broader economy inflation.
“The rise in inflation has been abrupt with annual CPI inflation rising from just 1.5% in Q1 2021, to an eye-watering 6.9% in Q1 2022,” he said. “We’re forecasting inflation peaked at 7% in Q2 this year. For many Kiwi households, this will be their first exposure to high inflation during their working lives and it’s highly unpleasant.”
Robinson said Kiwis should not expect the RBNZ to spare the economy if they don’t see evidence of inflation falling.
“As part of that inflation battle, in the absence of a miracle recovery on the supply side, the RBNZ need weaker consumer spending,” he said.
“So in fact, the question is not, “to what extent will lower consumer confidence translate into lower spending?” so much as it is “how high will the OCR need to go to bring about the weakness in consumer spending that the RBNZ believes it needs to see? Retailers face tougher times ahead, regardless.”
