Positive public provide fuel for economic growth

By BRIAN FALLOW economics editor

Consumers have shrugged off short-term uncertainties and look set to be the drivers of economic growth in the year ahead, Westpac says.

The Westpac McDermott Miller consumer confidence index rose 6.5 points to 118.6 in the June quarter, recovering most of its 7.3-point fall in March, and is back around its average level of the past four years.

Since March, Iraq-related uncertainty has dissipated and other threats to confidence like the Sars virus and the risk of power cuts have come and gone.

In its last monetary policy statement on June 5, the Reserve Bank warned that transitory factors like Sars and electricity-related production cuts would wipe about 1 per cent off June quarter GDP, exaggerating the underlying pace of the slowdown.

"This [survey] will give the bank some confidence that its story of a weak international environment but a strong domestic one still holds good and the softly, softly approach to easing is appropriate," Westpac chief economist Brendan O'Donovan said.

"What we see here may partly be a relief rally. However, more people than ever before are saying they are better off financially than a year ago, reflecting the increase in wealth from sharply higher house prices and lower interest rates."

The Real Estate Institute's national median house price last month hit a record $210,000, 11.7 per cent higher than a year ago.

Consumers are also more optimistic about the outlook for the New Zealand economy, reversing the negative net reading on that question in March.

A majority consider it a good time to buy a major household item, suggesting some retail sales momentum will be maintained through 2003, O'Donovan said.

While the improvement in confidence was widespread (Gisborne/Hawkes Bay the only region to record a fall), rural regions tended to be less optimistic than the cities.

"A rising New Zealand dollar and reduced commodity prices, combined with potential disruptions to trade and tourism, are clearly eating into export revenues and spending intentions," O'Donovan said.

"However, the rising value of houses and high levels of job security are underpinning confidence in the towns and cities." .

The rebound in Auckland was 7.3 points, ahead of the national average and second only to the Bay of Plenty, which improved 12.3 points.

The 18 to 29 age group remains the most confident, those aged 50-plus the least confident, with optimists only just outnumbering pessimists.

The monthly TVNZ/Colmar Brunton survey has also been improving, the net balance rising from a low of minus-18 in March to minus-6 in May.