New Zealand's Slow Growth, Rate Rises Hinder Spending, Sky City CEO Says

New Zealand’s weak economic recovery is likely to hinder consumer spending for the rest of the year and the central bank may have been too quick to boost borrowing costs, the head of the nation’s largest casino operator said.

The bank raised rates in June and July to withdraw stimulus introduced when the country suffered its worst slump in three decades. The first move was probably “right, maybe the second one was a little early,” said Nigel Morrison, chief executive officer at Auckland-based Sky City Entertainment Group Ltd.

New Zealand’s economy likely expanded 1 percent in the year ended June 30 after contracting 2.2 percent in the previous period, the central bank estimates. Governor Alan Bollard, who boosted rates to 3 percent from a record-low 2.5 percent, said July 29 the pace and extent of further increases may be more moderate as the outlook for economic growth has softened.

“I don’t think there’re any strong signs for celebration” about the economy, Morrison said in an interview today. “I don’t think things are getting any worse. But it’s hard to say they’re getting better right now. We would hope they would improve over the next 12 to 18 months.”

The bank’s moves have curbed household incomes, prompting retailers to drop prices to attract consumers and luring them from gaming machines and tables. Sky City said today sales and operating earnings at its Auckland site, which generates two- thirds of group profits, fell in the year ended June 30.

The stock fell by the most in more than a year, declining 10 cents, or 3.3 percent, to NZ$2.89 at the 5 p.m. market close in Wellington.

Growth, Optimism

Sales at the Auckland casino slid 2.3 percent and earnings before interest, tax, depreciation and amortization dropped 5.3 percent to NZ$194 million ($137 million), Sky City said today.

The decline in gaming revenue was led by domestic premium players such as property developers, restaurant owners and retailers, Morrison said. The number of average bets of NZ$300 or more a hand, a gauge of domestic premium play, fell more than 15 percent from a year earlier, he said.

“The last 18 months is finally wearing them down,” he said on a conference call earlier. “It difficult for those guys to see the light at the end of the tunnel.”

As the economy recovers, those customers will return to the casino more frequently, he predicted.

“Certainly in calendar 2011 we would expect to see some growth and optimism return to the economy, and people prepared to spend their money,” Morrison said.

Buoying sentiment, the government cuts income taxes from Oct. 1 with an associated increase in sales tax.

“The unknown is how much of that will be spent,” said Morrison. “It is a very competitive environment out there for the retail dollar.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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