Consumers turn 'mildly' pessimistic as bad news prevails

Wednesday 25th March 2009

New Zealand consumers turned pessimistic in the last three months as rising unemployment, falling property values and a gloomy global backdrop caused people to trim spending and pay debt.

The Westpac McDermott Miller Consumer Confidence Index fell to 96 in the first quarter from 101.3 in the previous three month period. A reading below 100 means pessimists outnumber optimists. Consumers felt worse off financially than they did three months ago and fewer thought it was a good time to buy a major household item, the survey showed.

The level of pessimism is still shallow versus its mid-year slump in 2008, when the index sank to 81.7 in the second quarter amid high interest rates and rising fuel and food costs. Kiwis are also holding their heads higher than Americans, where the equivalent index is wallowing at a low 56.6, and Australians, whose confidence index is at 85.6.

Westpac senior economist Donna Purdue said the gap may reflect traction from interest rate cuts, lower taxes and fiscal spending, while house prices haven't tumbled as much as in Europe and the US.

"Confidence has remained remarkably resilient given the sheer volume of negative news consumers have been bombarded with in recent months," Purdue said.

The survey results are broadly consistent with the central bank's forecast for very weak consumer spending through 2009 and are unlikely to prompt Governor Alan Bollard to change its stance on monetary policy, Purdue said.

Still, economic data is likely to disappoint the central bank this year and undermine its prediction of a mild recovery in the second half, she said. Combined with the recent rebound in the kiwi dollar, weak data will help drive the official cash rate down to 2% by mid-year.

Government figures on Friday are expected to show the economy shrank 1% in the fourth quarter, worse than the central bank's forecast of a 0.8% contraction. New Zealand's dollar has gained 6.8% against the US dollar since March 10 and was recently at 55.98 US cents.

A net 57% of those surveyed expect bad economic times over the next 12 months, up from 45% in the December quarter. The longer-term outlook is more upbeat, with a net 50% expecting better times in the next five years, close to the record high 51% who were long-term bullish in the December quarter.

That probably reflects expectations that the economy is bound to climb out of its recession, after a slump some economists predict will last for six quarters.

A net 28% of consumers polled said they were financially worse off than a year ago, a deterioration from the 21% who felt that way in December. A net 10% of respondents said it was a good time to buy major household items, virtually unchanged from 11% in December.

The survey was taken between March 1 and March 15 and has a margin for error of 2.5%.

By Jonathan Underhill

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