NZ Q4 retail sales volumes rise above market expectations; Q4 GDP likely to face modest downside risks

New Zealand’s retail sales came in stronger than market expectations at +1.7 percent q/q during the fourth quarter of 2018, boosted by a solid core, after a flat print in Q3. That said, there still remains a modest downside risk to Q4 GDP (0.6 percent q/q), according to the latest report from ANZ Research.

There are more pieces of the puzzle to come, but the RBNZ may be setting themselves up for disappointment (expecting 0.8 percent q/q for Q4 GDP) – though indicators of capacity pressure will also be important to watch.

Core retail volumes, which exclude volatile components like petrol, were up 2.0 percent q/q – to be up 5.0 percent over the past year. This points to a solid spending pulse, supported by solid disposable income growth, and potentially a lagged effect of the Families Package. With petrol prices on the decline, fuel volumes rose 1.0 percent q/q in the quarter. In nominal terms, total spending was up 1.8 percent.

Housing-related spending was on the weaker side, with furniture, floorcoverings and houseware down 1.3 percent q/q (the third quarter of decline), hardware down 2.1 percent, and department store spending down 2.6 percent.

Clothing (4.1 percent), electronics (4.6 percent), and pharmaceuticals (8.2 percent) all got a boost, while there was more wining and dining – with spending on food and beverage services up 4.2 percent. Accommodation spending continues a solid run (1.9 percent q/q).

"Broadly speaking, we expect private consumption (and retail spending) growth to gradually moderate from here. High levels of household debt, slowing population growth, a cooling housing market, around-average consumer confidence, and some concerning global growth signals should be sufficient to prevent an acceleration," the report added.

Image Courtesy: ANZ Research