(Bloomberg) -- New Zealand retail spending slid in the second quarter, adding to signs the economy contracted and is potentially in its third recession in less than two years.
Sales volumes fell 1.2% from the first quarter, Statistics New Zealand said Friday in Wellington. Volumes per head of population dropped 1.6% to the lowest level since 2016 if the second quarter of 2020, when the economy was in a pandemic lockdown, is excluded.
Spending slowed as the Reserve Bank maintained tight monetary policy through the first half of the year and delivered a hawkish signal in May that the Official Cash Rate may need to move higher. Last week, the central bank reversed its position, cutting the benchmark a quarter-point to 5.25% and forecasting further reductions after it became more assured that weak demand was curbing inflation pressures.
“Today’s figures were in keeping with the generally soft tone of the economic data over the quarter, which together indicate that GDP is likely to be particularly soft,” said Michael Gordon, senior economist at Westpac in Auckland.
“Sales have been restrained by both rising interest rates, which have squeezed the budgets of mortgaged households, and rapidly rising prices that have eaten into consumers’ purchasing power,” he said. “Both of these pressures are now starting to ease though they will likely be replaced by concerns about job security and income growth.”
The retail sales decline was deeper than economist’s median estimate of a 0.9% fall and was the ninth drop in volumes in the past 10 quarters.
The RBNZ last week projected the economy shrank 0.5% in the second quarter, and estimated a further 0.2% contraction in the three months through September. A number of local bank economists agree that the economy is in a recession, with growth forecast to return in the fourth quarter.
Spending has slowed despite more people in the economy. The population has increased 4.3% in the two years through June 30, although the gain in the second quarter was the smallest in two years.
Today’s report showed sales fell in industries sensitive to high borrowing costs such as electrical goods and car yards, where volumes dropped 2.7% from the prior quarter. Accommodation and hospitality spending was also on the wane.
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