This as rising living costs and RBNZ warnings dampen the demand for retail goods
2022’s retail sales ended on a weak note, as rising cost of living and Reserve Bank warnings dampened the demand for retail goods.
ASB’s Economic Note reported a 0.6% drop in retail spending volumes in Q4, contrary to market expectations for a small rise, while core retail volumes were even softer, falling 1.3% quarter over quarter.
“Q4 retail volumes were weaker than expected and capped off a difficult year for retail after a stellar 2021,” said Kim Mundy (pictured above), ASB senior economist. “Rising prices are clearly weighing on the purchasing power of consumers. There also looks to be a shift in spending patterns going on, with the reopening of the NZ border and the pivot back to pre-COVID-19 spending habits. That shift is benefitting services spending at the expense of retail goods (most likely consumer durables).”
The recent storms are expected to provide retail with a short-term boost as consumers replace damaged items. It is unclear, however, how quickly or how sizeable the retail rebound could be, and whether this will help the NZ economy avoid the expected recession this year.
“It is also unclear whether it will be enough to prevent the retrenchment in household sector activity that we expect for 2023,” Mundy said. “It is hoped that the boost will enable some retailers to remedy high stock levels.”
ASB expects retail activity to struggle over the coming period as the Reserve Bank continues its aggressive monetary policy tightening.
“We expect a further 50bps of hikes in 2023 and a 5.25% OCR peak,” Mundy said. “The risk is a higher 5.5% peak as flagged in last week’s RBNZ monetary policy statement. How the household sector copes with rising debt servicing (and wider living) costs will have a bearing on how far up the OCR goes and how long restrictive OCR settings are maintained. We have pencilled in OCR cuts from May 2024, but this is on the proviso that the RBNZ is confident it is on top of inflation.”
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