Insights and projections from Westpac and ASB
New Zealand’s retail sector experienced a robust increase in card spending in December, marking it as the fifth consecutive month of growth.
According to Satish Ranchhod (pictured above left), senior economist at Westpac NZ, the sector saw a monthly increase of 2%, the most substantial rise since the early post-pandemic months of 2022.
This surge is indicative of recovering consumer confidence and a revitalisation of spending habits.
Detailed breakdown of retail spending
Monthly and yearly dynamics
The December upswing significantly exceeded Westpac’s expectations, with a monthly change far outpacing the forecasted 0.3%.
Despite the strong monthly performance, the annual comparison still shows a decrease of 1%, pointing to ongoing challenges but also highlighting a notable improvement from the previous -2.3%.
Core retail strengthens
Core retail sectors, excluding fuel, also mirrored this positive trend with a 1.8% monthly increase. This improvement suggests a broader recovery, as sectors traditionally less volatile to price changes show strengthened consumer purchasing power.
Sector-wide retail spending analysis
Diverse category growth
The growth wasn’t isolated to specific areas; notable increases were observed across various categories.
Household durables like furnishings rose by nearly 4%, indicating robust consumer interest in significant purchases. Similarly, groceries, apparel, and hospitality also enjoyed gains, showcasing a widespread uplift in retail activity.
Economic insights and 2025 outlook
Projections from ASB
Nick Tuffley (pictured above right), ASB’s chief economist, echoed the positive sentiment noting a “welcome lift” in card spending after a subdued November.
Despite potential ongoing challenges such as rising unemployment and fluctuating wage growth, the conditions are set for a continued retail recovery throughout 2025, albeit at a measured pace.
Future consumer spending trends
The upswing in December sets the stage for potential retail recovery in the upcoming year.
With decreasing cost-of-living pressures and improved consumer sentiment, bolstered by anticipated further reductions in the OCR, there is optimism for sustained growth in consumer spending.
Long-term economic impact
Sustainable recovery expected
Looking ahead, economic conditions appear favourable for a sustained improvement in retail spending. The easing of financial pressures, such as decreasing inflation and falling interest rates, is expected to support further increases in consumer spending and also boost the housing market.
Gradual uplift anticipated
While December’s sharp increase in spending suggests a positive trend, the overall recovery is expected to be gradual.
Interest rate reductions will take time to fully impact the economy, and inflation and borrowing costs are normalising rather than remaining at historically low levels. Thus, more typical spending increases are forecasted for 2025, rather than an extraordinary surge.
Forecasting New Zealand’s economic recovery in 2025
December’s rise in retail spending is a hopeful indicator for New Zealand’s economic trajectory as it moves into 2025.
With supportive economic policies and a stabilising financial environment, the retail sector is poised for continued recovery, providing a promising outlook for businesses and investors in the new year.
For more information, read the commentaries from Westpac and ASB.
