Retail spending in New Zealand has exceeded expectations, rising by 0.9% in Q4 last year, based on the latest data from Westpac NZ. The bank had predicted a 0.7% increase in consumer spending.
“This is a positive sign for consumer sentiment and the market as we go into 2025. People are spending more money on electronics and discretionary items,” said senior economist at Westpac NZ, Satish Ranchhod.
The report revealed that, alongside a 5% year-over-year increase in spending on electronic goods, consumers also spent more on home furnishings, department store items, and clothing, with increases of a respective 4%, 4%, and 2%. The only decline was in grocery store purchases, which Ranchhod suggested could be attributed to people dining out more frequently, New Zealand Adviser reports.
“Financial housing pressures are easing, and household spending appetites are increasing,” he added.
Earlier this month, the Reserve Bank of New Zealand (RBNZ) reduced the country's official cash rate (OCR) by 50 basis points, bringing it to a new low of 3.75%.
This widely anticipated decision was met with optimism, as many Kiwis continue to face challenges from rising living costs and fewer job opportunities.
In addition, New Zealand's unemployment rate rose to 5.10% in February, making some potential buyers hesitant to enter the market and pushing others out completely.
Despite the challenges, many market participants, including the central bank, expect further rate cuts later this year.
Ranchhod noted that the rise in consumer spending occurred prior to the RBNZ's recent rate reduction: “We've seen a pickup in consumer spending over the last couple of months. Demand for discretionary goods is booming.
“Importantly, the full impact of those declines is yet to be felt, as many mortgages are still on the relatively high interest rates from recent years. However, over the next six months, around half of all mortgages will come up for re-fixing and many borrowers will have the opportunity to re-fix at lower rates. That will give spending a boost, especially through the second half of the year,” he continued.
Furthermore, Westpac NZ has predicted a 7% increase in New Zealand's property prices in 2025, followed by an additional 5% rise in 2026, marking a reversal from the declining property values seen last year.
Meanwhile, inflationary pressures in New Zealand seem to be easing, which could be another sign of rising consumer spending.
The Q4 2024 Consumer Price Index (CPI) showed that inflation in the country remained stable, rising by 0.5% for the quarter and 2.2% for the year, in line with market expectations.
Ranchhod stated that inflationary pressures will have some effect on the country's property markets.
“But the bigger boost to demand will be in those interest rate deductions, which really does put more Dollars back into wallets,” he added.