Pessimism reigns as NZ ponders 2022 economy without elimination strategy

New Zealanders are feeling pessimistic about the economy, worried about rising interest rates and the prospect of new Covid-19 variants, Westpac’s latest consumer confidence data shows.

The bank’s consumer confidence index dropped 3.6 points in the December quarter, to 99.1. Any reading below 100 indicates that more people are pessimistic than optimistic about the economy. It follows a similarly sharp fall in the September quarter.

“It’s been a stressful year for a lot of New Zealand households,” said Westpac senior economist Satish Ranchhod. “With the combination of lockdowns, rising interest rates and now a new Covid variant, it’s no surprise that confidence has taken a tumble in recent months.”

He said while the labour market was in good health and spending had begun to increase, the factors that were weighing on sentiment were likely to be rising mortgage rates, which increased rapidly in the second half of this year, and ongoing concern about Covid.

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Infometrics principal economist Brad Olsen said it reinforced the concern that had been apparent since New Zealand switched from an elimination strategy for Covid to more active suppression.

There was a feeling of “HOGO”, he said – hesitancy or hassle of going out in a changed environment.

He said while 2021 had been intended to be a year of recovery it had instead been a year of lockdown for Auckland in particular and there was a feeling that there were bigger changes afoot and people were worried about how the pandemic would be managed, which made it harder to plan for the year ahead.

He said while it was likely that a more pessimistic view would take hold next year, he hoped it would remain at the relatively low level seen in the survey.

Ranchhod said many households reported their financial position had deteriorated over the year and a growing number through their finances would come under pressure next year.

“Borrowing costs have already taken a bite out of many households’ disposable incomes, and many more will face re-fixing at higher interest rates over the coming year. A large number of households will also have found their purchasing power squeezed by the rapid rise in consumer prices, which in many cases will have outpaced the growth in wages.”

Bay of Plenty had the steepest fall in confidence in the quarter, followed by Northland.

“Confidence is at low levels in every part of the country, and there have been sharp falls in tourist hot spots like Queenstown, Nelson and the Bay of Plenty. The combination of social distancing requirements and a lack of tourists from Auckland has been a significant drag on spending in those regions.”

Auckland had a small increase in confidence in the quarter, which Ranchhod said was due to the end of lockdown.

Imogen Rendall, market research director at McDermott…