Retail in recession due to pressures

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Economic pressures on households and businesses have been highlighted by BNZ bank’s chief economist Mike Jones.

During a recent trip and public talk in Gisborne, Mr Jones pointed to inflationary and export pressures as being of most concern to people he had spoken to here.

“We are seeing those pressures faced by households being brought to bear,” he said.

“We saw it in the retail figures where even though households are spending more, in terms of dollars, we are getting less for that spending.

“If you look at the volume of sales leaving shop floors, that’s now fallen for five quarters out of the last six. The retail sector is clearly in recession because households are under pressure with high inflation, high mortgage rates.”

Mr Jones said he expected some of those pressures to intensify, due to the lag time of higher interest rates.

“The average mortgage rate households are paying is still around 5 percent but we know that’s going to 6-to-6.5 percent over the next six months.”

While the Reserve Bank held the official cash rate (OCR) steady for the latest quarter, most New Zealand banks raised mortgage interest rates.

Mr Jones said while the Reserve Bank declared in May that it had done enough to tackle rising inflation by raising the OCR, wholesale interest rates had continued to rise, “largely on the back of what’s happening offshore,” he said.

“If you look at two-year New Zealand wholesale interest rates, they are up 40 to 50 basis points from May. Bank funding costs are also creeping up.

“So, that’s why you have seen those shorter term mortgage rates continue to lift.”

China’s slowing economy was “front of mind” for many people here, he said.

While China’s GDP was expected to grow about 5 percent this year, it was expected to drop to about 4 percent growth in 2024 and 2025.

“Just in the last few weeks, those concerns around demand activity have picked up.

“I think what we are seeing is some element of structural change at play and some element of a normal cycle.

“The growth target for China is 5 percent and it’s looking increasingly likely they may not hit that. For China, it is a clear slowdown from where they have been at — 7 to 8 percent.”

Forestry, with upwards of 60 percent of exports going to China, was particularly exposed.

“Clearly there is some stress in certain quarters here, whether it is land, meat or forestry.

“The commodity business is a cyclical one but we are hopeful it will turn next year. China is clearly big but it’s not everything in terms of our exports.”