New Zealand Spending Report Another Sign Economy Has Contracted
New Zealand's first-quarter retail sales fell by the most in 11 years, putting the nation on the brink of a recession and increasing the prospect the central bank will cut interest rates from a record high.
Retail sales volumes fell 1.2 percent in the three months ended March 31, the biggest decline since 1989, according to a government report today. The second successive monthly drop in sales was six times the pace expected by economists.
Declining spending follows a slump in employment, plunging consumer confidence and the lowest level of house sales in 16 years, adding to signs the $105 billion economy may have contracted in the first quarter. Ten of 14 economists surveyed by Bloomberg News say Reserve Bank Governor Alan Bollard will cut the benchmark interest rate from 8.25 percent by Sept. 30.
“Private consumption looks set to be a considerable drag on gross domestic product,'' said Khoon Goh, senior economist at ANZ National Bank Ltd. in Wellington. “First-quarter growth will be negative and the prospects for the second quarter are looking no better.''
Goh said he wouldn't rule out a rate cut as early as June 5, although his forecast is for September. There is a 30 percent chance of a rate cut next month, according to an index calculated by Credit Suisse Group based on swaps trading.
New Zealand's dollar fell to the lowest in almost four months after today's retail sales report and has dropped 4.3 percent since March 31 as traders increase bets Bollard will start cutting interest rates. The currency bought 75.60 U.S. cents at 2:25 p.m. in Wellington from 76.08 cents immediately before the sales report.
Inflation Rate
Last month, Bollard said the official cash rate needed to remain high “for some time'' because inflation is above the 1 percent-to-3 percent range he is required to target. Consumer prices rose 3.4 percent in the year ended March 31.
The slump in economic growth may slow inflation and prompt an earlier decline in rates, said economists.
“The risks to the economy are skewed to the downside,'' said Shamubeel Eaqub, economist at Goldman Sachs JBWere Ltd. in Auckland. “Monetary policy needs to be less restrictive.''
Last week, Bollard said the economy is set for lower growth and said if commercial banks restrict lending too much, “that could exacerbate an economic contraction.''
Consumer confidence fell to a 10-year low in the first quarter, according to an index calculated by Westpac Banking Corp. and McDermott Miller Ltd.
Jobs, Housing
Employment slumped by 28,000 workers in the first quarter, more than 10 times the pace forecast by economists, according to a government report on May 8 americashadvance. House sales fell to a 16-year low in April, the Real Estate Institute said May 12.
Finance Minister Michael Cullen in March said he couldn't rule out a recession this year.
Today he told a business meeting in Christchurch the economy faces “very significant challenges'' as household disposable income declines, a drought cuts farm production and the New Zealand dollar slows exports.
Home-loan costs have jumped while the price of gasoline and food has accelerated, leaving less money for consumers to spend on discretionary goods.
The interest rate on a two-year fixed mortgage was 9.63 percent in March, up from 8.71 percent a year earlier, according to central bank figures. Gasoline prices jumped 14 percent in the same period, according to government figures. Food prices rose 6 percent from March last year, led by butter and milk.
Clothing Sales
Hallenstein Glasson Holdings Ltd. today said sales at its clothing stores fell 5.3 percent in the 14 weeks ended May 11. The Auckland-based company said full-year profit will fall, citing “considerable pressure from a rising cost of living.''
Briscoe Group Ltd. said first-half profit at its home-ware and sporting goods stores will drop after a slump in sales in the three months ended April 27.
“The retail market was markedly more challenging than for the first quarter of last year, reflecting a continuation of the difficult trading conditions we experienced in the second half of 2007,'' Managing Director Rod Duke said in a May 7 statement.
In the first quarter, retail sales fell 1.2 percent excluding inflation, the biggest drop in volumes since the first quarter of 1997, the statistics agency said. Economists expected a 0.2 percent decline, according to the median forecast in a Bloomberg News survey of 12 analysts.
Sales volumes through car dealers fell 6 percent while supermarket and grocery sales volumes gained 3.3 percent.
Excluding vehicle dealers, fuel outlets and workshops, core sales volumes rose 0.2 percent from the fourth quarter when they increased 0.1 percent.
In the March month, retail sales fell 1.2 percent or three times the pace expected by economists. Sales declined at 13 of the 24 store categories, the statistics agency said.
Supermarket and grocery sales, which make up a fifth of all retailing, slipped 1 percent. Sales by vehicle dealers dropped 5.3 percent from February when they tumbled 4.4 percent.
Core retail sales, excluding gasoline, auto dealers and workshops, decreased 0.5 percent.
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