High arrears despite easing inflation
As the holiday season draws closer, New Zealand households and businesses are grappling with high arrears and financial pressures despite recent signs of easing inflation.
The October Credit Indicator from Centrix revealed that while inflation dropped to 2.2% in the September quarter, credit challenges persist, signaling a complex economic outlook.
Inflation Eases, But Credit Pressures Persist
The Reserve Bank’s recent inflation report shows prices now within the target range of 1-3%, leading economists to anticipate a potential drop in the OCR to 3.5% in the coming months.
However, credit insights reveal that despite these positive indicators, consumers and businesses are facing financial strain.
Keith McLaughlin, managing director at Centrix, said that while the OCR outlook is positive, “credit insights from the last month reveal a bumpier road ahead.”
As of October, 458,000 Kiwis are behind on payments, a minor improvement from September but still 3.5% higher than last year.
With the festive season approaching, arrears levels are expected to rise, reflecting seasonal spending patterns, McLaughlin said.
Mortgage arrears and new credit uptake rising
Mortgage arrears have also increased, alongside new credit applications, suggesting a cautiously optimistic property market heading into spring.
New-to-credit data revealed that buy now pay later (BNPL) has remained the most popular credit choice for new customers since 2018, though its growth has tapered since 2021, with a renewed interest in telco products.
Consumer financial hardship cases have declined slightly, but McLaughlin views this trend positively.
“It is positive to see consumers taking proactive steps... to safeguard their financial future,” the Centrix leader said, signaling increased financial awareness.
Businesses face rising defaults and liquidations
In the business sector, credit defaults have risen by an average of 16%, with the transport and construction sectors particularly hard-hit.
Company liquidations have surged, increasing 25% year-on-year, reaching the highest monthly total in a decade.
Hospitality businesses, including cafes and pubs, have seen a significant increase in liquidations, up 34% in the past year, reflecting the ongoing impact of high operational costs and economic uncertainty.
Outlook: Preparation key as holiday pressures mount
As New Zealand approaches the holiday season, both consumers and businesses are urged to review finances carefully.
McLaughlin advises planning ahead and seeking financial advice to prepare for upcoming challenges, stating, “It’s imperative that both businesses and consumers plan for these challenging times... to navigate the continued bumps in the road ahead.”
To compare the latest figures with the previous month’s, click here.
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