Brian Fallow

The Economics Editor of the NZ Herald

Consumer confidence just above the line

Household spending growth is expected to remain steady around 2.5 per cent and not accelerate. Photo / Thinkstock
Household spending growth is expected to remain steady around 2.5 per cent and not accelerate. Photo / Thinkstock

Consumer confidence continues to languish in barely positive territory in the latest Westpac McDermott Miller quarterly survey.

The index was almost unchanged at 102.4, from 101.3 in the December survey. Any level above 100 indicates more optimists than pessimists.

"Confidence remains weaker than at any time since early 2009, leaving aside March last year when households were surveyed shortly after the February earthquake," Westpac economist Felix Delbruck said.

The news flow since then had been a fairly mixed bag.

"Financial market fears around Europe have calmed down a bit and the housing market has continued to warm up, but there's also been little sign of improvement in the employment figures, and consumers have been hit by further rises in petrol prices and other cost increases, such as announcements of hefty rates increases," Delbruck said.

A net 20 per cent of households said they felt worse off than a year ago, unchanged from the previous survey.

Although that was not as bad as the net 47 per cent recorded in the post-quake survey a year ago it was still worse than at any other time since mid-2009, the trough of the recession, Delbruck said.

Households, however, are somewhat more optimistic about the outlook for their finances, a net 6.5 per cent expecting improvement, up from a net 5 per cent three months ago.

More think it is a good time to buy a major household item - a net 17 per cent against 13 per cent in December.

"That's a move in the right direction, to be sure, but still leaves this component as weak as in December 2010, not long after the September earthquake."

People were pessimistic about the near-term outlook for the economy as a whole, Delbruck said. A net 19 per cent expected bad economic times over the coming year, a little better than December's net 22 per cent but still the second worst since mid-2009.

"Only 27 per cent expect good times over the next five years, the third decline in a row, leaving long-term optimism at its lowest level since mid-2008."

McDermott Miller managing director Richard Miller said consumers' pessimism about their own financial position over the next year revolved around perceptions of rising inflation.

"Consumers who are optimistic about their prospective financial position put it down to expected wage or salary rises."

Confidence among people in the public sector slipped into negative territory for the first time for a year and is 11 points lower than among those in the private sector.

FORECASTS FOR GROWTH CUT

Economists have revised down their forecasts for economic growth over the year ahead, mainly to reflect delays in the rebuilding of Christchurch.

The New Zealand Institute of Economic Research's quarterly survey of 11 forecasters is now picking annual average growth of 2.7 per cent over the next 12 months, down from 3 per cent in the December survey. The range is 2.1 to 3.2 per cent.

Growth the following year has been revised upward, to 3.2 from 3 per cent.

"A more moderate recovery path reflects delays in the Canterbury rebuild, and investment more generally," the institute said.

"Forecasters are more optimistic about the global economy and exports, reflecting slightly less concern about the situation in Europe."

Household spending growth is expected to remain steady around 2.5 per cent and not accelerate.

Forecasters expect the unemployment rate to fall from 6.3 per cent now to 5.2 per cent in two years, enough to deliver real wage gains of 1 per cent a year.

"Despite the long recession, internal and external imbalances remain," the institute said.

Forecasters expect the fiscal deficit to narrow from $13 billion in the current year to $2 billion in 2013/14.

But the external deficit is set to worsen, to $13 billion by 2014.

They expect the Kiwi dollar to remain high on a trade-weighted basis, but that that, combined with a slow recovery, will keep inflationary pressure subdued - 2.1 per cent over the year ahead and 2.5 per cent the year after, with a correspondingly lower track for interest rates.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production apcf02 at 21 Dec 2014 08:09:31 Processing Time: 408ms