Independent economist Tony Alexander’s monthly Spending Plans Survey is out, which shows that New Zealand households are still planning to cut back on spending amid soaring interest rates and inflation.
A net 11% of the 1,672 survey respondents plan to cut consumption spending over the next 3 to 6 months. While this was an improvement on last month’s net 18% and the record net 27% decline in July, it is a sharp turnaround from late 2021 when there was a net 17% positive about their spending:
As noted by Tony Alexander, the improvement “does not actually bespeak of economic improvement as yet – just less degradation”. So, the outlook is getting worse, just more slowly.
Accordingly, “for most retailers the survey results suggest continued weak trading conditions as we head through spring into summer” because “there are still many more people planning to cut spending than raise it”.
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:
Tony Alexander is more optimistic in his outlook than me, in that he believes the improvement in spending intentions “tells us that although the worsening world growth outlook is legitimate cause for concern, the chances of recession in New Zealand are diminishing – but not completely absent”.
I am less convinced.
Unlike Australia where floating rate mortgages dominate, most Kiwi borrowers are on fixed rate mortgages of two years or less. As such, most Kiwis that originated mortgages at rock-bottom pandemic rates have yet to impacted by the Reserve Bank’s aggressive monetary tightening.
This situation will change at the end of this year when these fixed rate mortgage terms begin to expire. Thousands of Kiwi borrowers will be forced to refinance to significantly higher (perhaps double) mortgage rates, which will smash their disposable income and crimp their spending.
That is when the impact of the Reserve Bank’s tightening will truly be felt.
