Confidence rises as bad news abates

Wednesday 24th June 2009

Consumer confidence bounced back strongly in the three months to June, as fears of a deeper world recession eased, according to the latest Westpac-McDermott Miller Consumer Confidence Index.

If the surge in confidence turns into an unexpected splurge in consumer spending, it could put off any further reduction in the Reserve Bank's Official Cash Rate, says Westpac, which is expecting a further 50 basis points to be cut in the second half of the year.

The biggest single improver of the five elements measured in the index was a sharp reduction in the numbers expecting worse economic conditions in the year ahead.

Pessimists were still running at a net 29% ahead of optimists, although this was well down on the 58% net pessimism recorded in the March quarter.

"It seems consumers are responding not so much to what has happened, but to what hasn't happened," Westpac chief economist Brendon O'Donovan said in a report on the long-running quarterly survey of national consumer sentiment.

Tax cuts, plummeting interest rates and on-sale bargains all contributed to a net 16% of respondents saying that now was a good time to buy a major household item.

Overall, the consumer confidence index sat at 106.0, back to its highest point since December 2007, when it stood at 110. A score above 100 indicates more optimists than pessimists.

The index has been volatile over the last 18 months, reflecting New Zealand's early slide into recession in 2008, followed by the implosion of global credit markets in the last quarter of last year.

Perhaps reflecting the depth of the current economic cycle, expectations of better times in the next five years was at highest ever recorded level, with a net 56% optimism about longer term prospects, despite short term net pessimism and a net 26% of those surveyed saying they were worse off now than a year ago.

All regions recorded improvements, apart from the dairy-centric Waikato, which showed a slight fall in confidence, perhaps reflecting the reduced Fonterra payout announced during the period.

Aucklanders and younger people were most optimistic.

Businesswire.co.nz

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