Christmas spending tipped to slow

Economists are predicting a tough Christmas for retailers as rising mortgage rates put a dent in consumers' spending plans.

BNZ chief economist Tony Alexander predicted yesterday that many retailers would be forced into discounting stock much earlier as they tried to recover from what was expected to be a disappointing Christmas period.

He said over the next four weeks the economy was expected to soften further with lower migration figures, a flattening of the housing market and another expected hike in interest rates this week.

"Many retailers are going to find that sales disappoint going into Christmas and that they'll be discounting stock earlier than usual," Mr Alexander said.

"I think that after Christmas, you could see some of the biggest post-Christmas sales you've ever seen in New Zealand.

"Basically, the factors which drive retail spending are turning towards the negative side."

December is a critical month for retailers, not just for turnover but for maximising profitability.

Paymark, whose eftpos network accounts for about 80 per cent of all electronic transactions in New Zealand, said consumers spent $3.2 billion last December, up 9.7 per cent from the same period in 2003.

Of this, $170 million was spent on Christmas Eve alone and $190 million in Boxing Day sales.

ANZ chief economist John McDermott said he was concerned that despite the looming mortgage rate rises, some households would still overspend.

"It'll be great fun while we're doing it but in January, we'll all regret it."

He thought there was a greater chance of an economic correction early next year than in the lead-up to Christmas.

ASB chief economist Anthony Byett said while he expected a relatively good Christmas for retailers, there would be lots of bargains around because of retail competition and the fact the exchange rate was so high.

However, Linda Trainer, spokeswoman for Westfield New Zealand, said the shopping mall chain was positive about consumer spending in the lead-up to Christmas.

"We're looking forward to seeing people out there," she said.

NZ Retailers Association chief executive John Albertson said he believed Christmas sales would be "relatively strong".

He argued that retail spending was not driven solely by economic factors. "At Christmas time, raw economics often get left behind and the emotional side of Christmas takes over."

However, "if retailers have any concern about the lateness with which consumers move, then there may well be some price activity".

He conceded that many consumers would be able to take advantage of post-Christmas bargains, agreeing a "softening of the market" was ahead.

- HERALD ON SUNDAY