Praneeta Mahajan
Hamilton, September 20, 2024
New data from ASB Bank shows that household demand in New Zealand remains subdued, despite recent tax changes and a cut to the Official Cash Rate (OCR). According to ASB Bank economist Yen Nguyen, total card spending in August 2024 declined, contrasting with the upward trend observed in July 2024. This raises concerns about the overall economic outlook, particularly the labour market, migration, and tourism.
Card spendings decline
In August 2024, total card spending saw a slight decline, despite a cut in the OCR and tax changes introduced on July 31, 2024. While spending in the retail and core sectors showed a small uptick, other areas painted a less optimistic picture.
According to ASB Bank economist Yen Nguyen, “Electronic card transactions in August suggest household demand remains subdued. We may need to wait a bit longer to see the full impacts of these changes. However, the key driver for consumer spending will be the economic outlook, especially the labour market. The prospects for card spending also rely on the net migration picture and improvements in the tourism sector, which look unlikely based on recent trends.”
Details of spending
As per the ASB Bank report, consumable spending remained flat, and the hospitality sector registered a 0.2% decline.
Ms Nguyen said that weak hospitality spending could be linked to continued financial headwinds facing households, a slowdown in net migration, and stagnating tourism numbers.
Meanwhile, spending on motor vehicles experienced a sharp 1.5% decrease compared to the previous month, reflecting a reluctance by households to commit to high-value purchases.
However, the data was not entirely negative, as durable goods and apparel saw modest gains of 0.5% and 2.1%, respectively, marking the first increase in these categories in seven months. Fuel prices also decreased slightly, which may have provided a minor boost to consumer spending on fuel, which rose by 0.1%.
Shifting priorities
The latest card transaction data reveals a shift in how households are prioritising their spending. Ms Nguyen pointed out that consumers are focusing more on essentials, such as groceries and household goods, which now account for 41% of total card spending, up from 36% pre-pandemic.
This shift is attributed to rising living costs and the uncertainties brought on by the Covid 19 pandemic, leading to a more cautious, savings-focused approach by many Kiwis.
Spending sentiment in services improved slightly, with a 0.2% increase month on month, but non-retail spending dropped by 0.4%. The overall picture reflects a mixed performance across different sectors, as households remain cautious in their expenditures amidst economic challenges.
Outlook remains weak
Looking ahead, the report predicts that retail spending will remain weak throughout the remainder of 2024, with significant improvements not expected until 2025. While inflation and interest rates are starting to ease, the effective mortgage interest rate has only recently peaked, providing little immediate relief for household budgets.
“Additional headwinds include slowing population growth due to reduced net migration and stalling tourism gains, which had previously supported consumer spending. Wage growth is also decelerating, and unemployment is expected to rise, reaching around 5.5% by mid-2025,” stated the report.
Given these challenges, a quick recovery in consumer spending is unlikely. While the OCR cut in August had minimal impact on card spending, the Reserve Bank of New Zealand (RBNZ) may use this data to justify further easing of monetary policy.
ASB’s forecast indicates that a gradual recovery may begin only when the labour market shows signs of improvement, likely in the latter half of 2025.
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
