Westpac and ASB economists expect gradual improvements through 2025
Retail spending in New Zealand rose slightly by 0.3% in February, reflecting a gradual recovery but still trailing the levels seen a year ago.
Despite a decline in interest rates, consumer spending remains restrained, as higher mortgage costs and global uncertainty weigh on sentiment.
Retail spending: A slow climb back up
- Monthly retail spending: +0.3% (previous: -1.6%)
- Annual change: -0.6%
- Core retail spending (excluding fuel): +0.5% monthly, +0.6% annually
Satish Ranchhod (pictured left), senior economist at Westpac NZ, noted that spending has been trending higher for about six months but at a gradual pace.
“We’re no longer seeing sharp swings in spending, but rather a slow and steady improvement,” Ranchhod said.
Grocery spending has been the main driver of growth, reflecting price increases rather than rising consumer demand. Meanwhile, spending on discretionary items like hospitality and household goods has improved but remains subdued.
Consumer sentiment and mortgage costs hold back growth
According to Nick Tuffley (pictured right), ASB chief economist, card spending remained flat for the second consecutive month, reinforcing a cautious consumer outlook.
“Caution on the part of consumers reflects unease over the employment backdrop and heightened global volatility,” Tuffley said.
Although interest rates have been declining since August, many borrowers are still locked into higher-cost mortgages. Over the next six months, half of all mortgages will reprice, providing potential relief for household budgets.
Tuffley expects spending to pick up later in 2025 as lower mortgage rates reduce household debt servicing costs and boost disposable income.
Mixed results across spending categories
Stats NZ data showed mixed spending patterns:
- Consumables (e.g., groceries) up 0.6% after a steep decline in January
- Apparel spending rebounded 1.1% month-on-month
- Durable goods spending dropped 0.1%, following January’s 2.7% decline
- Hospitality spending fell 0.1%, marking its second consecutive monthly drop
Vehicle spending declined 0.3%, despite lower fuel prices
Retail and core spending bounced back slightly from January’s sharp decline but failed to regain late-2024 momentum.
OCR cuts may be needed to boost spending
While the Reserve Bank (RBNZ) has already cut the OCR, economists suggest that further reductions may be required to stimulate spending.
ASB forecasts two 25-basis-point OCR cuts in April and May, bringing the OCR to 3.25%. If consumer spending remains weak, additional rate cuts may be needed to support economic recovery.
“The recovery in consumer demand is likely to be gradual rather than rapid,” Tuffley said.
With more than half of home loans set to reprice within the next six months, lower mortgage costs should eventually translate into stronger retail spending.
However, rising unemployment and global market uncertainty may temper demand in the short term.
Bottom line: New Zealand’s retail spending is showing early signs of recovery, but consumer caution and economic uncertainty could keep growth slow through much of 2025.
