A surprise slide in retail spending over the past three months has raised the prospect the economy may have fallen into recession.
Stats NZ data showed a 2.3 percent fall in seasonally adjusted retail volumes, which discounts the effects of price movements, in the three months ended June.
Economists had been forecasting a rise of 1.7 percent in volumes, as consumer spending was expected to bounce back after the initial hit of Omicrom, which has knocked retail spending by 1 percent in the first quarter of the year.
“Retail activity underwhelmed expectations with a second consecutive fall, raising the risk of a first half New Zealand recession. Durable spending was particularly weak, with the weakness coming through earlier than expected,” said ASB senior economist Mike Jones.
He said the weakness in consumer spending was mirrored in other parts of the economy then second quarter gross domestic product (GDP) could be negative following the first quarter’s slight fall, thus meeting the definition of a technical recession.
“This is not our core view, however.”
However, the recession risk was echoed by ANZ senior economist Miles Workman.
“On face value, today’s data suggest the economy may have been in a technical recession in the first half of the year -a risk flagged some months ago by the Heavy Traffic Index.”
The fall in sales was seen across the board with 10 of the 15 sales categories having lower volumes, led by motor vehicle and parts, electrical and electronic goods, supermarket and grocery stores, hardware, building, and garden supplies, and food and beverages.
Core retail sales, which exclude fuel and vehicles, fell 1.6 percent.
Workman said the surge in spending after the first lockdowns were lifted concentrated on DIY and electronics, while hospitality and accommodation had done it tough, but that trend was now being reversed.
Both agreed that the weakness in spending would likely continue but that would not stop the Reserve Bank from increasing interest rates further.
“A cool housing market outlook, the diversion of New Zealand spending away from local retail and towards international travel and ongoing Covid-19 caution highlight the challenges facing the retail sector and household spending in general,” Jones said.
“We expect the RBNZ to continue with the further front-loading of 100bps of OCR hikes by the end of the year (50bps in October and November).”