New Zealand Retail Sales Slump Poses Downside Risk for GDP

An unexpectedly large decline in New Zealand retail sales suggests gross domestic product may be weaker than anticipated.

(Bloomberg) — An unexpectedly large decline in New Zealand retail sales suggests gross domestic product may be weaker than anticipated.

Sales adjusted for inflation and seasonal effects fell 1% in the second quarter from the first, Statistics New Zealand said Wednesday in Wellington. That’s more than twice the 0.4% drop estimated by economists and represents the third straight quarterly contraction.

“This is the first partial indicator for second-quarter GDP, and at face value presents downside risk” to our forecast of 0.4% growth, said Miles Workman, senior economist at ANZ Bank New Zealand in Wellington. “Our simple indicator model based solely on these data suggests second-quarter GDP will come in at 0.0% q/q. But there’s plenty more partial indicators to come, so we’re keeping an open mind.”

New Zealand households are cutting back spending as soaring prices and interest rates reduce disposable incomes. With more pain to come as many fixed-term mortgages expire and roll onto higher rates, the economy may struggle to emerge from the recession that began in the final quarter of 2022. 

“With around NZ$15 billion of fixed mortgages repricing at higher interest rates each month, the pressure on households’ finances will continue to build,” said Darren Gibbs, senior economist at Westpac in Auckland. “Together with ongoing increases in consumer prices — albeit hopefully moderating over time — and falling rural sector incomes, this will be a persistent drag on spending levels.”

After lifting the Official Cash Rate at pace to 5.5%, the Reserve Bank has said it’s done raising rates but also won’t be cutting them any time soon. Governor Adrian Orr said last week the economy needs another mild recession at the very least to slow activity and reduce price pressures.

“It’s the bare minimum we need to see because without doubt demand has been well outstripping the pace of the supply capacity” of the economy, Orr said in an interview with Bloomberg Television. “We need to see subdued consumer spending, business investment and government constraints on spending, these are a critical part of the inflation process.”

The second-quarter GDP data will be released on Sept. 21. Reports on indicators such as net exports, construction and manufacturing output will be published in early September.

The statistics agency said 11 of the 15 retail industries had lower sales volumes in the second quarter compared with the first quarter. The largest contributors to the overall fall were food and beverage services, down 4.4%, and hardware, building, and garden supplies, which declined 4.8%. 

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