I suspect
a lot of people are in the latter category right now.
It’s entirely understandable. It’s not just the persistence of recessionary conditions that is unsettling people.
Many industries are facing big structural upheavals as artificial intelligence and other technological advances shake up the workforce.
I don’t need to go through all the sectors and their specific woes now, but it is a constant theme, particularly for older professional workers who are wondering about their career prospects through to retirement.
These are the people who should be at the peak of their spending power.
In combination with rising unemployment, it means that many of those who should be the engine room of a consumer-led recovery are sitting on the sidelines.
Figures out from ANZ Roy Morgan last week showed consumer confidence fell in May, giving up the small gains it had made in April.
ANZ chief economist Sharon Zollner noted that the global tariff uncertainty looked to be taking a toll on consumer confidence as well as the business outlook.
Zollner, like most economists, still believes there is a recovery under way.
It’s just painfully slow.
Last week, I looked at that town and country divide that is opening up in the economy.
I noted that despite the huge value it provides in terms of export earnings (accounting for 60% of the total), the primary sector only accounts for about 6% of GDP.
So it takes some time for the extra export dollars to work through rural economies and bolster the rest of the country.
Meanwhile, the big drivers of the urban economy are things like construction, property and retail.
The construction sector is struggling right now.
We’ve seen record numbers of new multi-unit dwellings built in the past few years, just as immigration numbers have fallen sharply.
That will reverse out, but it is going to be a slow burn.
The sector has to work through the oversupply of housing and wait for population growth to catch up.
Residential property will likely pick up sooner and may help nudge consumer confidence. But exactly when it will turn isn’t yet clear.
The same goes for retail more generally.
How confident consumers feel and the levels of retail spending in the economy are big drivers of GDP growth.
An upturn in retail spending is key to the recovery.
BNZ head of research Stephen Toplis took a deep dive into the topic last week in a note titled “Retail on a knife edge”.
“When economic cycles turn, they invariably develop a self-fulfilling momentum that generates shifts in activity much greater than inherently conservative forecasters might contemplate,” he writes.
That sounds promising.
But Toplis also notes that Donald Trump and his wild trade policies have thrown a spanner in the works of that momentum.
“For GDP growth to truly gather pace, consumer spending simply has to accelerate,” he says.
Private consumption represents almost 60% of expenditure-based GDP.
“The good news is that the building blocks for an upturn are still in place,” he says.
“So we cling to the hope that a recovery in economic activity can progress. The question is how long this can remain the case in the face of current heightened uncertainty.”
In other words, we have interest rates coming down, export earnings are up, but we need consumers to flick the switch and start acting like there is a recovery.
At that point, it becomes self-fulfilling.
If we look through the monthly noise, consumer confidence has been trending higher, but the level remains low by historical standards, Toplis says.
“Miserable people do not spend.”
BNZ is currently forecasting a lift in retail sales of 2.5% for 2025 and 4% the year after.
That’s pretty solid.
But Toplis is nervous about those forecasts. He notes that consumer confidence readings would need to rise quite sharply for that level of spending to play out.
“There is a real danger that the current global turmoil results in lower New Zealand growth and employment,” he says.
“Uncertainty itself will reduce business confidence in hiring (and investing). Further fiscal tightening won’t help.”
Toplis also puts the outlook in perspective by noting that even if “these potentially optimistic forecasts come to fruition, it means it will be 2027 before core retail sales return to their 2021 peak”.
“That is a very long retail recession”.
There is no question retailers have been doing it tough for a long time now.
Even the economic boom we had during the Covid stimulus era was hard to enjoy, clouded as it was by the logistics of lockdowns.
Many are now struggling just to hold on for the long-anticipated recovery. Others simply haven’t managed to.
We’ll get some new data next Thursday when Stats NZ releases the electronic-card spending numbers for May.
Hopefully, they’ll show some positive signs.
However, Toplis doesn’t exactly end on a cheery note.
“While expectations are that the broader environment is improving, there is still a long way to go before anything like normality is reached,” he says.
“The retail sector still has a long struggle ahead of it.”
I’m sure he’d be happy to be proved wrong. Harking back to his first point about momentum shifts boosting activity by more than conservative forecasters expect, I hope he is.
For that to happen, we need to cheer up a bit and stop feeling like the global economy is melting down.
I can’t really reassure you about that.
So, for now I’ll just say: go on, buy that new jacket, you know it looks good.
Liam Dann is business editor-at-large for the NZ Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
