Spending surges but forecast higher interest rates could
drag on consumers, says expert

New Zealand's economic pick-up is flowing through to consumers, with retail spending up, but potentially higher interest rates and a slowing in the growth of house prices could present challenges this year, says an economist.

BNZ yesterday released its monthly online retail sales index, which showed sales grew by 13 per cent in December compared with the same month the previous year.

Overseas spending was up 24 per cent while sales on domestic websites grew 7 per cent.

Online sales represent about 6 per cent of all spending in New Zealand but come on top of figures released by Statistics NZ on Tuesday showing total electronic card transactions at retailers rose 5.5 per cent in December compared with the previous year.


Last week Paymark, which processes about 75 per cent of all electronic transactions in New Zealand, reported December spending up 7.5 per cent on 2012, driven by record-smashing splurges on Christmas Eve and Boxing Day.

BNZ economist Doug Steel said all those factors added up to a strong trend in spending activity for the end of last year.

"We think retail will make quite a strong contribution to economic growth in GDP for the fourth quarter."

Steel said the spend-up was a reflection of the wealth gains felt as a result of house prices and equity going up as well as an improvement in the labour market.

An increase in the number of people moving to New Zealand was also likely to be contributing to the spending, he said. "There has been big migration growth in the last 12 months. From a retailer's point of view that's more sales."

Steel said the labour market was expected to continue to pick up this year as signalled by improving business confidence.

This week the quarterly NZIER survey of business opinion showed businesses are the most optimistic they have been for 20 years.

Not only were businesses looking for staff. The fact that it was difficult to hire both skilled and unskilled workers showed there would also be pressure for wage growth this year, Steel said. Any wage growth would also feed into consumer spending.


Sales volumes had now exceeded the previous peak in 2007 by 5 per cent.

But Steel warned that rising interest rates and the potential for housing market growth to slow could be a drag on consumers.

BNZ predicts the official cash rate will rise by 1.25 percentage points this year, up from 2.5 per cent.

"There's a question mark over how interest rates do bite. We know a lot of mortgage debt is still on floating rates or fixed for less than a year."

About 75 per cent of mortgage debt was in that category, which was high historically, he said. "So if and when the rates go up it is going to have some bite and feed through to payments quickly.

"There's always a question about how that will impact people."

The Reserve Bank's "speed limit" on low-deposit lending also had the potential to slow the housing market.