Consumer confidence falls in quake's wake

Christchurch residents were not interviewed. Photo / Sarah Ivey

Consumer confidence fell sharply and across the board following last month's earthquake, providing retrospective support for last week's interest rate cut by the Reserve Bank, Westpac says.

The latest quarterly Westpac McDermott Miller consumer confidence survey, taken between March 1 and 13, recorded a drop of 10.4 points to 97.9. Any number below 100 indicates more pessimists than optimists.

"The fall in confidence was across the board - geographically, by age, income groups and sex," Westpac economist Dominick Stephens said.

"But the drop was not catastrophic. The level of confidence is still higher than during the global financial crisis."

Out of respect for the situation of Christchurch residents following the quake, Christchurch households were not interviewed in the March survey, he said. Instead, additional households from the rest of Canterbury were interviewed.

The fall in the overall index was driven by responses to the question about whether respondents expect good or bad times for the economy over the next 12 months. A net 46.5 per cent expect bad times compared with a net 9.7 per cent pessimistic three months ago. Most cited the earthquake as the main reason.

"Historically changes in households' economic outlook have been reasonably good harbingers of the direction of spending, though not necessarily by how much," Stephens said.

They are less gloomy about their own individual prospects, however. A net 1.2 per cent expect their financial position to improve over the coming year, down from a net 8.5 per cent in the December survey, and a net 12.5 per cent say it is a good time to buy a major household item, down from 16.5 per cent. Last year had shown how a cautious consumer could dampen economic recovery, even at a time of high commodity prices, Stephens said.

The risk of a nationwide hit to confidence following the Christchurch quake was a key factor behind Governor Alan Bollard's decision to cut the official cash rate 50 points to 2.5 per cent last week. "This survey supports that decision."

The survey asks people how their own financial situation has changed over the past 12 months. Respondents are slightly less negative with a net 20 per cent saying it has got worse, compared with a net 22 per cent three months ago.

Asked whether the impact of the tax changes in last year's Budget would be positive, negative or make no difference, compared with the survey just after the Budget, those expecting a positive effect have fallen from 37 to 29 per cent while those expecting no effect have jumped from 24 to 40 per cent. Those expecting a negative effect registered 27 per cent against 28 per cent post-Budget.