Consumers grow gloomier, home building declines

Monday 9th March 2009

New Zealand consumers became gloomier last month, while the value of home building activity fell in the fourth quarter, suggesting lower borrowing costs aren't yet gaining traction.

Roy Morgan Research's latest poll shows 63% of consumers expect the economy to deteriorate over the next 12 months, up from the 60% level in early February, according to a report published on the polling company's website. Figures from Statistics New Zealand today showed the value of residential building work, excluding inflation, fell 13% in the final three months of 2008, compared with the third quarter.

Consumer confidence has weakened amid rising unemployment and an ongoing slump in the housing market which has driven down property values. Reserve Bank Governor Alan Bollard is expected to cut the official cash rate by 50 basis points to 3% this week, bringing his cuts since July to 5.25 percentage points as the recession cools inflation.

"As activity plunges the logical next indicator to show capitulation is likely to be construction sector employment and other property boom related segments such as property and financial services and more indirectly linked retail and wholesale," said Shamubeel Eaqub, economist at Goldman Sachs JBWere. "The economy is yet to show any evidence of monetary policy traction," he said. "We expect the RBNZ to deliver 'insurance' cuts to 2.5% by mid year to halt the continued nosedive in the economy."

The Roy Morgan poll found 46% of consumers deemed it a bad time to buy a major household item, up from a 40% reading in the previous fortnightly survey. The composite confidence index fell to a six-month low of 95.9 from 100.4.

By Jonathan Underhill

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