Record low consumer confidence not unexpected: Robertson

Source: 1News

It's "not entirely unexpected" that consumer confidence has dropped, Finance Minister Grant Robertson says.

The Westpac McDermott Miller Consumer Confidence Survey, released on Tuesday, saw a sharp drop in the June quarter, falling 13 points to 78.7. The score is the lowest level recorded since the survey began in 1988.

A score of more than 100 shows more optimism than pessimism and vice versa for a score of less than 100. That means, according to the survey, there are more Kiwis who are pessimistic about the economy than there are who are optimistic.

"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," the report noted.

"Large numbers of households have told us that their financial position has deteriorated in recent months, and many expect that it will continue to weaken over the coming year. That’s despite the introduction of policy measures to limit the pressure on living costs, such as the reduction in the fuel tax and halving of public transport charges."

The report said the pressure on household finances - which could lead to a reduction in spending - was "essentially what the [Reserve Bank] is trying to engineer" as it raised the official cash rate to try and dampen domestic demand and get a grip on soaring inflation.

Westpac economist Michael Gordon said household budgets "are being squeezed in a way they haven't been for decades".

“The combination of rising mortgage rates and increases in living costs has already taken a large bite out of disposable incomes. And with interest rates set to rise even further, many households will find the pressure on their finances becoming more intense over the coming months.

"The pressure on household finances is weighing on spending appetites, and we’re expecting a downturn in economic growth more generally over the coming months."

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The Finance Minister said the results were not completely unexpected considering recent inflation.

"While it's tough out there for many households and many businesses, that's why we put in place the supports that we have."

He said the Government had got the balance right with giving support without exacerbating inflation. That's despite Treasury telling the Government its $350 cost of living payment for people earning under $70,000, which will be in place from August, would make inflation worse in the short-term.

Prime Minister Jacinda Ardern told Breakfast on Monday economists were expecting inflation to peak in the middle half of the year then start to drop afterwards.

National's finance spokesperson Nicola Willis said the consumer survey result was a "massive vote of no confidence in the Government's approach to economic management".

Meanwhile, ACT leader David Seymour said the consumer confidence index "shows that New Zealand is heading towards a recession".

“This comes only days after GDP figures showed our economy contracted by 0.2% in the March quarter and that we’re halfway along the road to recession," he said. Recessions are triggered by two consecutive quarters of negative economic growth as measured by GDP.

But Ardern told Breakfast the GDP drop was a reflection of a volatile environment and the fact exports were down a margin. Stats NZ said it was driven by the fact primary and goods-producing industries fell in the quarter.

On Tuesday, Robertson also said economists generally agreed there wouldn't be another GDP drop in the June quarter.

The McDermott Miller Consumer Confidence Survey is carried out quarterly by the consulting firm. It asks people about their expectations for the economy, how they feel about buying large household items, and their intentions to spend, save or invest. A score is calculated from this.

Surveys of 1559 people were carried out online between June 1 and 14. The margin of error of the consumer confidence survey is ±2.5%, at a 95% confidence level.

Sampling was done to ensure regional spread, with additional quotas for key demographic variables.