NZ retail spending surprised to the upside again in Q4, with gains in discretionary spending underpinning a 0.9%qtr rise. We expect lower interest rates will support further gains over 2026.
December quarter retail sales
- Retail sales (volume of goods sold): +0.9% (Prev: +1.9%)
- Westpac f/c: +0.6%, Market: +0.6%
- Core retail sales (volume of goods sold): +1.5% (Prev: +1.2%)
- Nominal retail sales: +1.4% (Prev: +1.8%)
Year to December
- Volume of goods sold: 4.4%
- Nominal sales: 4.9%
Discretionary spending on the rise.
The December quarter saw another solid increase in retail sales.
Nominal spending rose by 1.4% over the quarter and is up 4.9% on the same time a year ago.
Importantly, that increase isn’t just a result of price increases. The amount of goods that consumers are actually taking home was up 0.9% in December quarter and is up 4.4% over the past year. That was above our and market forecasts for a 0.6% rise.
This is the fifth quarter in a row that we’ve seen a solid rise in retail spending. That corresponds to the period over which the RBNZ was cutting the OCR. And looking under the surface, the increase in spending has been centred on discretionary spending areas, which tend to be more sensitive to interest rates. For instance, spending on electronics, furniture and hardware were all up 2% over the past quarter. We also saw gains in spending on recreational items (+5%) and clothing (+3%).
On top of increased spending on goods, spending on hospitality and dining out has also been climbing (though some of that will reflect increased spending by tourists).
The only areas where we saw spending fall in the December quarter were vehicle sales (through that followed a large increase in the previous quarter) and grocery spending. In the case of groceries, some of that decline may reflect a shift to dining out.
Outlook
Looking ahead, the RBNZ has signalled that the easing cycle has come to an end. However, many households are still rolling off earlier higher fixed mortgage rates and are refixing and lower at ones, in some cases, at rates that are 100 to 200bps lower. That process will continue for several months yet. And the related easing in average borrowing costs will help to support spending through 2026.
While the pickup in spending is an encouraging sign for retailers, in some cases consumers are actually purchasing items from low-cost online / offshore retailers. As a result, many domestic retailers are still facing tough trading conditions. This is a particular issue in sectors like apparel.
Implications for GDP growth
We’re forecasting GDP growth of 0.6% in the December quarter. Today’s result was ahead of our expectations, though much of that will relate to imported goods. We’ll take a closer look at how our forecast for GDP growth is shaping up over the next couple of weeks as additional data on December quarter activity is released.
