Analysts at ANZ noted that the NZ retail sales volumes were stronger than expected in Q4, with retail discounting – especially across big-ticket items – continuing to have a key influence.
"We have lifted our estimate for Q4 GDP from +0.5% q/q to +0.7% q/q. While we are not negative on the outlook from here, we do believe consumption growth will moderate as households rebuild saving.
- Retail sales volumes rose solidly (beating market expectations) in Q4, lifting 1.7% q/q. This follows modest (but upwardly revised) growth of 0.3% q/q in Q3. In per capita terms, real spending rose 1.1% q/q, which easily reverses the small dip experienced in Q3 (which was only the second fall in the past five years).
- Strength in the quarter was relatively broad-based. Eleven of the 15 retail industries saw higher sales volumes in the quarter. There was especially strong growth in food and beverage services (+3.7% q/q), which could be a reflection of the unseasonably warm weather over the latter part of the quarter. Apparel spending also rose strongly for the second consecutive quarter (+4.0% q/q). But it doesn’t appear to have been a tourism-related story, with accommodation spending down 2.3% q/q.
- It was also a better quarter for big-ticket spending. After a mixed Q3, motor vehicle sales rose 2.1% q/q and furniture and floor coverings lifted 3.6% q/q. There were also solid gains in electrical and electronic goods (2.6% q/q). Interestingly, the implied prices for all of these components fell in the quarter, highlighting the ongoing theme of price competition.
- Strength was most evident outside of the main centres. Nominal spending rose only 0.5% q/q in both Auckland and Wellington, but it was strong in the likes of the Waikato, Bay of Plenty and Gisborne.
- Supportive forces for consumer spending remain. The labour market is strong, and wage growth is expected to tick higher. Interest rates remain low and competitive price pressures should persist.
- Yet we still expect consumption growth to moderate. In our view, the rundown in household saving seen over recent years will not be sustained at a time when house price growth is more modest. In addition, with visitor arrivals growth slowing and the currency likely to bite into average visitor spending, the impetus from international tourists is also likely too cool. "
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