This could have widespread implications on the economy, including the property markets
Kiwis are loosening their purse strings, which could have widespread implications on the economy, including the property markets.
Retail spending grew more than expected, up 0.9% during 2024's October to December fourth quarter, according to new data from Westpac NZ. The bank had anticipated consumer spending would increase just 0.7%.
"This is a positive sign for consumer sentiment and the market as we go into 2025," Satish Ranchhod, senior economist at Westpac NZ, told New Zealand Adviser. "People are spending more money on electronics and discretionary items."
In fact, the report found that, in addition to a 5% increase, year-over-year, on electronic goods, consumers spent more money on home furnishings, department store buys and clothing, up 4%, 4% and 2%, respectively. The one decline was in grocery store purchases, which Ranchhod said may be due to people eating out more often.
"Financial housing pressures are easing, and household spending appetites are increasing," he said.
Earlier this month, the Reserve Bank of New Zealand (RBNZ) cut the country's already-low official cash rate (OCR) by 50 basis points to a new low of 3.75%. The central bank's widely-expected move was met with optimism, as many Kiwis are still struggling amid rising costs of living and reduced employment opportunities.
Also in February, New Zealand's unemployment rate ticked up to 5.10%, causing some would-be buyers to remain cautious about entering the market, and pushing others out altogether.
Headwinds aside, many market participants - including the central bank - are anticipating further rate cuts later this year.
Ranchhod pointed out that the increase in consumer spending happened before the RBNZ's recent rate cut.
"We've seen a pickup in consumer spending over the last couple of months," he explained. "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," Ranchhod continued. "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."
The economist added that his firm is anticipating home values will once again increase. Westpac NZ has forecast a 7% increase in New Zealand's property prices in 2025, with an additional 5% increase in 2026, a reversal from last year's declining property values.
Meanwhile, inflationary pressures appear to be subsiding in New Zealand, another likely indicator of increased consumer spending.
The 2024 fourth quarter Consumer Price Index (CPI) revealed that inflation in the Kiwi country is steady - up 0.5% for the quarter, or 2.2% for the year - and in line with market expectations.
Ranchhod said inflationary pressures will have some impact 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 said.
