Retail spending surge may see NZ avoid recession

General view of Muriwai beach on Auckland's west coast, surf school. NZ Herald Photo by Alex Burton 14 May 2021

Economists say New Zealand could skip the double-dip recession.

Kiwis resumed their post-Covid spending spree through the summer months, buying up surfboards and other outdoor recreational goods to enjoy their holidays at home.

Higher spending on electronic items and outdoor recreational goods helped boost overall spending in the March 2021 quarter, Stats NZ said today.

After adjusting for price and seasonal effects, the total retail sales volume rose 2.5 per cent in the March 2021 quarter following a 2.6 per cent fall in the December 2020 quarter.

That could be a sign that GDP growth for the first quarter will come in stronger than expected, says Westpac senior economist Satish Ranchhod.

"Today's result was stronger than our forecast for a 0.7 per cent increase, and well above the median analyst forecast for a 1.8 per cent decline in spending."

The lack of international tourists in the peak season late-summer months had been expected to drag the economy into its second quarter of zero growth - a technical recession.

But ASB economist Mark Smith has now shifted his first quarter GDP forecast from zero growth to 0.3 per cent growth.

That would mean New Zealand has avoided the expected double-dip Covid recession.

Westpac and ANZ have also been forecasting flat GDP growth for the March quarter.

Both now say they will reassess their forecasts.

"Today's result suggests some upside to that estimate. However, we'll firm up our forecasts as other partial indicators are released over the next couple of weeks," said Ranchhod

ANZ senior economist Miles Workman also noted the storing data presented an "upside risk" to forecasts for flat GDP growth in the first quarter.

But there was plenty more data to come, he said.

"Building work put in place will be a key partial indicator to watch given the sharp decline in construction activity in Q4.

"All up, today's data add to our level of confidence that the NZ economy will avoid a double-dip technical recession over Q4 2020 and Q1 2021 – as some have been forecasting.

Electrical and electronic goods had the largest increase, up 8.4 per cent followed by recreational goods, up 16 per cent in the March 2021 quarter.

Both industries had falls in the December 2020 quarter, down 0.3 per cent and 14 per cent respectively.

"Higher spending in the electrical industry coincides with falling prices for computers and phones during the first quarter of 2021," retail business manager Sue Chapman said.

"In addition, recreational and outdoor sporting goods were top of the list for many New Zealanders over the summer holiday break.

Many were enjoying the ability to travel around the country for camping, water or biking activities, and the opportunity to attend large events such as the America's Cup."

Hardware, building, and garden supplies had the largest dollar value increase, up $144 million (5.6 per cent) after a modest fall of $15 million (0.6 per cent) in the December 2020 quarter.

Retail spending has been resilient since the economy exited lockdown, Ranchhod said.

Satish Ranchhod, senior economist at Westpac Bank. 2019 New Zealand Herald Photograph by Doug Sherring

"Spending appetites have been buoyed by the low level of interest rates, strength in the housing market and diversion of spending previously earmarked for overseas holidays back into the local economy.

Those factors had helped to offset the drag from the loss of international tourist dollars.

"We expect spending will continue to firm over the coming months," he said.

"However, compared to pre-Covid trends, spending growth is likely to be constrained by the continued lack of international tourists and the slowdown in population growth."

The official figure for March quarter GDP is due on June 17.