Westpac and ASB predict 2025 rebound
New Zealand’s retail spending stalled in November, as reported by Westpac and ASB economists, with cautious consumers holding back despite recent gains.
While spending remained flat for the month, both banks pointed to improving conditions in the new year, driven by falling interest rates and rising consumer confidence.
Westpac’s Satish Ranchhod (pictured above left), senior economist, noted that recent increases in mortgage relief and tax cuts are yet to fully benefit households, while ASB chief economist Nick Tuffley (pictured above right) highlighted ongoing pressures from job insecurity and slowing wage growth. Both agree that spending recovery is likely to gather momentum in 2025.
Retail spending holds steady in November
Retail spending in New Zealand remained flat in November, following modest gains in recent months. On an annual basis, spending declined by 3.3%, reflecting continued caution among households amid economic challenges.
Core retail spending, which excludes fuel purchases, saw a slight 0.1% increase for the month but remains 0.9% lower year-on-year. Higher fuel prices, which rose 2% over November, also likely restrained spending in other categories.
Spending trends: Hospitality gains, discretionary categories struggle
Looking more closely at the data, hospitality spending has been the standout performer, rising 5% since August and notching its third consecutive monthly increase. In contrast, discretionary spending categories such as household furnishings and apparel remained weak.
Despite widespread Black Friday sales, spending on apparel dropped by 1%, and household durables fell by 0.2%. These categories, more sensitive to cash flow pressures, have yet to see a meaningful recovery.
Economists expect this to change next year as more households roll onto lower mortgage rates.
“The full impact of interest rate cuts hasn’t yet filtered through to households’ pockets, but we’re starting to see consumer confidence improve,” Ranchhod said.
Positive outlook for 2025
While retail spending has been subdued, economists remain optimistic for 2025, pointing to improving economic conditions. Falling mortgage rates and recent tax cuts are expected to gradually bolster household finances and lift spending.
Tuffley acknowledged current headwinds but highlighted emerging signs of optimism.
“Households are still hunkering down amid rising job insecurity and slowing wage growth,” the ASB economist said. “However, we feel we are approaching an inflection point, with further falls in interest rates set to support the retail sector and wider economy.”
Tuffley forecasts additional cuts to the OCR in early 2025, which should strengthen household spending power.
Fuel prices and economic challenges impact spending
Rising fuel prices, up 1.2% in November, have added to cost-of-living pressures, further limiting discretionary spending. Meanwhile, non-retail spending saw a significant decline of 1.5%, reflecting broader consumer restraint amid economic challenges.
Looking ahead, economists agree that the outlook for retail spending is improving. Factors such as falling interest rates, increased housing market optimism, and easing cost-of-living pressures are expected to drive a slow but steady recovery.
“Conditions are in place for a retail recovery in 2025, but progress will be gradual, especially as unemployment remains elevated,” Ranchhod said.
For now, households remain cautious, but signs of improvement are on the horizon as economic pressures ease and consumer confidence strengthens into the new year.
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