NZ consumer confidence rises on low interest rates

By Sophie Boot

Dec. 21 (BusinessDesk) - New Zealand consumer confidence picked up in the fourth quarter, with low interest rates encouraging spending though consumers remain dubious about future economic conditions.

The Westpac McDermott Miller consumer confidence index rose to 110.7 in the December quarter, from 106 in the September quarter, coming in slightly below the historical average of 111.5. A reading above 100 indicates optimists outweigh pessimists. The present conditions index rose 3.3 points to 111.6, and the expected conditions index rose 5.5 points to 110.

The Reserve Bank responded to a slump in dairy prices this year by embarking on an easing cycle in June, cutting the official cash rate four times to reach 2.5 percent in this month's review and projecting an unchanged policy for the next three years.

"What stands out is that households' appetite to spend has increased, and low interest rates are clearly playing a role," Westpac senior economist Satish Ranchhod said in his report. "Combined with an improved outlook for the coming year and low inflation, low borrowing costs are making it very attractive for consumers to purchase big ticket items like home furnishings.

"Low interest rates mean that many households are currently less concerned about paying down debt. But growth is set to slow over the coming year and unemployment is likely to increase. It'll be important for households to ensure that they keep debt and borrowing levels manageable," Ranchhod said.

Today's survey follows the ANZ Business Outlook survey, which showed New Zealand businesses ended 2015 on an upbeat note, with confidence rising to the highest level since April as data pointed to robust growth in the year ahead.

In the Westpac survey, 26.4 percent of consumers thought now was a good time to make a major household purchase. That's up 6.9 percentage points on September, and just touches the historical average of 26.5 percent.

A net 7.7 percent of the 1,565 people surveyed now expect good economic conditions over the coming year, in contrast to the net 15 percent expecting bad times in the third quarter.

However, longer-term confidence dropped 5.7 percentage points, with 18.4 percent of people positive about the economic outlook over the next five years, well below the long-term average of 31.6 percent. Just 4 percent of households expected to be in a better financial situation in a year's time, the lowest level in four years.

"It wouldn't be surprising to see some of this nervousness translating into a softening in spending over the coming year," Ranchhod said.

The survey ran between Dec. 1 and Dec. 11.

(BusinessDesk)