Westpac says spending on its credit and debit cards was up just 2% in December compared with the previous year

Many New Zealand retailers had a "soft" end to 2024, Westpac senior economist Satish Ranchhod says.

In a 'Retail Spending Pulse' bulletin, Ranchhod says spending on Westpac issued credit and debit cards was up just 2% in December compared to the previous year.

"While it’s encouraging that spending is rising, that’s still a very muted gain, especially given the large increases in operating costs that many retailers have faced over the past year. In addition, with New Zealand’s population increasing by about 1% last year, it also points to very limited growth in per-capita spending levels," he said.

Ranchhod said he thought 2025 will be "a better year for households and retailers", with some of the "big financial headwinds" now easing off.

"Inflation has dropped back and is now sitting close to 2%. And that better contained inflation outlook has allowed the RBNZ [Reserve Bank] to cut the Official Cash Rate [OCR] in recent months. We’re picking another 50bp cut at the upcoming February meeting, with further cuts likely over the year ahead."

But in terms of what happened at the end of last year, Ranchhod said it was "a very mixed picture" across sectors. Spending on groceries climbed about 3%. And there was more spending more on furnishings and appliances (+5%) and travel (+2%).

"However, we’re continuing to see lean times in the hospitality sector, with reduced spending on entertainment activities and dining out."

Spending's also been mixed across the country.

Ranchhod said areas with "strong agricultural backbones", like Southland, Otago, Northland and Waikato, have seen larger lifts in spending, potentially reflecting the improvement in agricultural export prices.

In contrast, spending growth has been more modest in Auckland (up 1% over the past year).

"Auckland has borne the brunt of the recent downturn in population growth, and that’s likely to have restrained spending. And in Wellington, spending growth has essentially stalled over the past year in the face of public sector cutbacks and low consumer confidence."

It will take time for the easing in financial pressures now being seen to ripple through the economy, Ranchhod said.

"But over the course of this year, we expect to see a firming in both household spending and the housing market. We’ve already seen consumer confidence pushing higher in recent months.

"However, we are still facing some challenges. Unemployment has picked up to 4.8% and is set to push above 5% over the coming months."

And Ranchhod noted that we’re also seeing an increasingly rocky global backdrop, with the NZ dollar falling sharply, earlier this week touching its lowest level since 2022.

"That’s welcome news for New Zealand exporters and tourism operators, who could see a bump in their earnings. However, for households the lower dollar is likely to push the price of some imports higher, including petrol. That will add to the pressure on households’ finances and will also be an important consideration for the RBNZ when they decide how far the OCR will be cut this year."