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N.Z. Business, Consumer Confidence Data Makes Case for Low Rates

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Dec. 19 (Bloomberg) -- New Zealand consumer and business confidence dropped on concern Europe’s debt crisis will slow global growth and discourage the central bank from raising record-low interest rates, private surveys showed.

An index of household sentiment fell to 101.3 this quarter from 112 in the three months through September, Westpac Banking Corp. and McDermott Miller Ltd. said in an e-mailed report. Business confidence sank for the fourth time in five months in December, ANZ National Bank Ltd. said in a separate report.

Falling confidence suggests weak consumer spending in the near term that would mean no rate increases from the central bank, Westpac said. Reserve Bank Governor Alan Bollard on Dec. 8 signaled he will leave the official cash rate at 2.5 percent until mid-2012 as he tries to sustain an expansion in an economy that relies on exports for 30 percent of its gross domestic product.

“Both business and household surveys show confidence has, at the very least, become much more fragile,” Dominick Stephens, Westpac’s Auckland-based chief New Zealand economist, said in the report. “That’s one more reason why the Reserve Bank is likely to want to keep rates on hold for the time being.”

The New Zealand dollar’s 7.9 percent drop against its U.S. counterpart in the past three months is the biggest decline among Group of 10 currencies. It bought 75.95 U.S. cents at 1:54 p.m. in Wellington from 76.44 cents immediately before the consumer confidence report.

Rate Pause

Eleven of 16 economists surveyed by Bloomberg News expect Bollard will keep borrowing costs unchanged until at least September. None expect an increase before June.

Consumer confidence is the lowest since the first quarter, immediately after an earthquake devastated the South Island city of Christchurch. The fourth-quarter decline is steeper than the slump in the first quarter, when the index fell to 97.9, Westpac said. Before then, the index had been above 100, which indicates optimists outnumber pessimists, since the first quarter of 2009.

“Evidence has mounted that the domestic economy entered something of a lull in the second half of the year,” Stephens said. The report “points to a retrenchment in consumer spending early next year,” he said.

The consumer survey of 1,567 people Dec. 1-11 showed a sharp decline in willingness to buy large-ticket items, Westpac said. A net 13 percent said it is a good time to buy, down from 30 percent three months earlier. The net figure subtracts pessimists from optimists.

Company Outlook

In its report on business confidence, ANZ National said a net 16.9 percent of companies expect the economy will improve over the next 12 months, down from 18.3 percent in November. The net figure subtracts the number of pessimists from the number of optimists.

A second measure of expectations for companies’ own sales and earnings declined to a net 25.7 percent, the lowest since March, from 28.8 percent in November, ANZ National said.

“New Zealanders seem to be just ’getting on with it’ albeit with occasional nervous glances over their shoulders at the slow-motion train wreck that is Europe,” ANZ National Chief Economist Cameron Bagrie said in a statement.

“There will be fallout for New Zealand via commodity prices, funding costs and a new urgency to fiscal austerity,” he said. “We will not be immune.”

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

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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