Consumers not ready to spend yet

The global economic recovery is gaining momentum, but consumers are not ready to loosen their purse strings yet, Treasury data shows.

Treasury is forecasting GDP economic growth of 0.8 per cent for the March quarter, in line with growth during the December quarter.

Treasury's May monthly indicators show households remain cautious, limiting their spending and reducing borrowing, despite the ongoing recovery of the economy.

Indicators of spending in the coming months, including electronic card transactions, suggest consumer spending growth will remain muted during the June quarter, consistent with a slight GST revenue shortfall in April.

Electronic card transactions fell 1 per cent in April, led by a 1.9 per cent fall in core retail transactions.

Consumer-related debt in April was 3.1 per cent lower than a year ago, as cautious spending translated to a reduction in borrowing.

Meanwhile, March quarter wage growth was moderated by more than expected, which was likely to be influencing consumers' spending decisions, the Treasury report says.

While consumers remain upbeat about future conditions, their current experience is playing a larger role in influencing their spending decisions, the report says.

The ANZ-Roy Morgan consumer confidence survey revealed 5 per cent of respondents felt worse off in May compared to 12 months ago.

In contrast to households, firms are reporting a strong rebound in activity, with the National Bank Business Outlook Survey showing firms' expectations of their own activity in the year ahead being at their highest levels since May 1999.

In addition, the BNZ-Business NZ Performance of Manufacturing Index indicated that manufacturing activity continued to expand.

Higher commodity prices and strong world demand for New Zealand's exports helped to post the first annual merchandise trade surplus since July 2002.

Subdued domestic demand and a higher exchange rate have dampened import payments.

Meanwhile, economic data showed the world economic recovery was gaining momentum, resulting in the OECD revising up their forecasts for world growth.

The strength was led by industrial sectors, with the JP Morgan global manufacturing PMI showing the fastest expansion in six years.

The strength was greatest in emerging Asia and Australia, which would benefit New Zealand as these countries make up more than 50 per cent of merchandise exports.

However, an escalation of European sovereign debt problems has raised concerns about the sustainability of the recovery, the report says.

"On balance, we still expect March quarter GDP growth of 0.8 per cent, although slower consumption growth provides some downside risk."