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Sluggish economy reflected in easing consumer confidence

Wednesday 17th March 2010

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New Zealand’s consumer confidence ebbed in the past quarter, while remaining positive, according to the Westpac McDermott Miller Confidence Index.

Confidence fell to 114.7 from 116.9 in the fourth quarter of 2009, after reaching a four-year high figure of 120.3 in the September quarter. An index number over 100 indicates more optimists than pessimists, among the 1,557 people surveyed in the first half of March.

“New Zealand consumers remain optimistic, but their confidence is ebbing in the face of a persistently sluggish economy,” said Richard Miller, managing director of McDermott Miller.

Consumers remain deeply pessimistic about their own financial situation, with a net 22% of respondents feeling they’re worse off than a year ago, compared to 21% last quarter. The only part of the survey to show improvement was a net 21% of consumers assessing that now is a good time to buy a major household item.

“The high exchange rate is about the only thing that worked in consumers’ favour recently, by driving down prices of many good, including consumer durables like cars and appliances,” said Westpac chief economist Brendan O’Donovan.

Consumer confidence is consistent with a steady but unspectacular recovery in consumer spending he said, and Westpac expects the Reserve Bank will remain comfortable with its announced plan to begin increasing the official cash rate around the middle of 2010.

However, the outlook of New Zealand consumers is much more optimistic than at this time last year.

“In March last year a massive 67% of consumers believed New Zealand was in for bad economic times over the year ahead and only 10% hoped for good times,” said Miller. “This March there are more optimists than pessimists on whether there will be good economic times in the year ahead, with 40% now expecting good and 30% expecting bad times.”

An additional question in this quarter’s survey was whether any changes to the tax and benefit system over the next 12 months would have a positive or negative effect on respondents’ overall financial situation. The results were evenly split with 33% expecting a positive effect, 34% a negative and 22% saying they expected no effect.

Goldman Sachs JBWere economist Philip Borkin said it should be noted that consumer confidence is still strong but that the economic backdrop hasn’t matched their previous lofty expectations.

“We would not be surprised, given waning momentum in the housing market and a still subdued labour market on top of potential cost of living increases in food, petrol, the emissions trading scheme and GST, that confidence experiences a further moderation over the remainder of the year,” he said.

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