New Zealand’s economy has finished 2022 in a sick state according to the Westpac McDermott Miller Consumer Confidence survey.
The overall consumer confidence index fell to its lowest level in records dating back to 1988 after falling 12 points to 75.6 over the quarter:
“Confidence has only come close to these sorts of lows twice before – first during the recession in the early-1990s, and then again during the Global Financial Crisis in 2008/09”, according to Westpac.
Financial pressures are the big concern that are worrying households, with the majority of households expecting their finances will continue to deteriorate over 2023:
Household finances are being squeezed on multiple fronts, according to Westpac.
First, soaring consumer prices have eaten away at households’ spending power, with “housing costs (up 9%) and petrol prices (up 19%), while food price inflation hit a 14 year high of 11% in November”.
Second, household finances have been smashed by large increases in borrowing costs in response to 4.0% of rate hikes from the Reserve Bank.
Worse, “the pain for large numbers of households is still ahead of them” given “most New Zealand mortgages are on fixed rates, and many borrowers are still on the very low rates that were on offer in the early stages of the pandemic”.
“However, that picture will change dramatically over the coming year” when “close to half of all mortgages will come up for repricing over the next 12 months”.
“For example, borrowers who fixed for two years in 2020 may have secured a rate in the 2.5% to 3% range. Those same borrowers are now looking at a two-year rate that’s more than 3 percentage points above what it was back then”.
To add further insult to injury, “house prices have tumbled, with prices dropping by an average of 14% across the country since November 2021”. And with interest rates likely to push higher, Westpac forecasts that “nationwide house prices will continue to fall over 2023”, which “represents a sizeable knock to many households’ net worth”.
Increasing numbers of New Zealanders also expect that economic conditions more generally will deteriorate over the next few years.
The number of people expecting to be worse off financially in a year’s time has hit the highest levels since the early-1990s recession:
Views on the economy have also deteriorated to their worst level in decades:
Finally, New Zealand households are “putting their wallets back in their pockets” given “the number of households who think it’s a good time to make a major purchase has fallen to its lowest level on record”:
This last sub-index correlates most strongly with household consumption – the economy’s biggest growth driver – and “point to some soggy spending numbers over the Christmas shopping period”.
Finally, Westpac “expect that spending will continue to weaken over the year ahead as borrowing costs push higher and the pressure on households’ finances builds”.
