Independent economist Tony Alexander’s monthly Spending Plans Survey is out, which shows that New Zealand households plan to cut back on their spending amid soaring interest rates and inflation.
A net 18% of the 1,207 survey respondents plan to cut consumption spending over the next 3 to 6 months. While this was an improvement on last month’s record net 27% decline, it is a sharp turnaround from late 2021 when there was a net 17% positive about their spending:
New Zealand consumers cut back.
Tony Alexander explained that “this is still a firmly negative outcome” and “suggests falling household spending across a range of goods and services over the remainder of this year”.
Alexander attributes the fall in spending intentions to two key factors. First, the majority of Kiwis expect their wealth to decline, especially housing values:
Kiwis expect their wealth to decline.
Second, the majority of Kiwis are concerned about the future. Note from the chart below that confidence plummeted after the Reserve Bank commenced its rate hiking cycle in late 2021 and house prices began to fall:
Kiwis are pessimistic about the future.
The survey shows that Kiwis plan to spend more on groceries – out of necessity as costs rise – but will cut back on discretionary spending like eating out, household durables, and clothing:
Kiwis to spend more on groceries, less of discretionary items.
As expected, housing indicators remain weak. A net 3.8% of respondents say they intend cutting back on plans for purchasing a house to live in, whereas a net 9.9% of survey respondents plan cutting back on purchasing investment property:
Kiwis plan to spend less on housing.
These results align with the collapse in New Zealand’s consumer confidence index to recessionary levels, with Kiwis with mortgages the most pessimistic:
Kiwis with a mortgage are far more pessimistic.
The Reserve Bank last month explicitly stated that it would continue tightening monetary policy to contain inflation, which hit a 32-year high 7.3% over Q2.
If true, Kiwi buyer sentiment will remain at recessionary levels and house prices will continue to fall.
The Reserve Bank, therefore, needs to tread carefully on interest rates. Otherwise it risks plunging the economy into recession.
