A New Zealand Dollar note is seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration/File Photo
WELLINGTON: New Zealand retail sales unexpectedly increased in the second quarter, suggesting that lower interest rates are starting to support household spending and underpin an economic recovery.
Sales adjusted for inflation rose 0.5% from the prior three months, Statistics New Zealand said yesterday in Wellington. Economists estimated the gauge, a measure of sales volumes, fell 0.3%.
A third straight gain in household spending comes despite expectations that economic growth stalled in the second quarter, with the Reserve Bank of New Zealand (RBNZ) last week projecting a 0.3% contraction.
That slump in activity underpinned the central bank’s decision last week to cut the official cash rate (OCR) to 3% and strongly hint the benchmark will eventually fall to 2.5%.
“While the retail sector is still confronting some tough trading conditions, we are starting to see signs that the long-awaited recovery is taking shape,” said Satish Ranchhod, senior economist at Westpac Banking Corp in Auckland.
“That includes gains in discretionary areas. However, it is still a mixed picture with spending in sectors like hospitality still flat.”
Spending on electrical goods increased 4.6% from the first quarter, while purchases of furniture, floor-coverings and recreational goods also rose.
Accommodation fell 2.1%, while food and beverage spending slid for a second straight quarter.
The RBNZ has cut the OCR by 250 basis points since August last year.
Policymakers expect more households will roll over onto lower home-loan interest rates in the next six months, which will support spending, although that will be offset by caution as the labour market softens.
“Spending levels are already pushing higher, and the full impact of the large reductions in interest rates over the past year is yet to be felt,” said Ranchhod.
“It looks like a recovery in the retail sector is now taking shape.” — Bloomberg
