NEW ZEALAND: VIEW: Westpac Expects Consumption To Rise As Mortgages Roll Over

February card transaction data showed a moderate rise of 0.3% m/m in retail spending and that the recovery in consumption remains gradual and predominantly driven by grocery price increases. Westpac expects it to “strengthen over the coming months” though as mortgages are refinanced at lower rates following 175bp of RBNZ easing. It says that “around half of all mortgages will reprice over the next six months”. But global uncertainty could weigh on consumer confidence.

• Westpac observes that “the recovery in spending has been gradual. Despite increases in recent months, spending is only back around the levels we saw at this time last year”.
• “Spending in discretionary areas, like household durables and hospitality, has picked up, but gains have been more modest at this stage.”
• “Many borrowers have chosen to roll onto relatively higher cost floating rate or shorter-term mortgages in anticipation of further mortgage rate cuts.”
• Such a large share of mortgages rolling over in the next 6 months “could see sizeable falls in households’ debt servicing costs and boost their disposable incomes. As those lower borrowing costs ripple through the economy, we expect to see spending picking up over the coming months.”
• “However, we’re now watching event offshore. The increasingly rocky global backdrop could dent confidence. It could also affect financial conditions in New Zealand, and that could be important for spending appetites.”