Stronger consumer confidence may remove need for more OCR cuts, Westpac says

New Zealand consumer confidence rose in the second quarter of 2009 to its highest level in 18 months, the latest Westpac McDermott Millar consumer Confidence Index showed. The overall consumer confidence index rose to 106 in June from 96 in March. An index number over 100 indicates there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists. Westpac said the figures suggested consumers were more willing to spend than they had been three months earlier. The Reserve Bank had been forecasting consumers would keep their hands in their pockets and any signs of strength were an "upside risk" for the central bank's view that the Official Cash Rate would stay at or below 2.5% until late next year. "Today's consumer confidence data will add to those perceived upside risks," Westpac Senior Economist Donna Purdue said. "Indeed, relative to the March quarter this survey points to a greater willingness to spend on the part of the consumer," she said. "Certainly, at current levels confidence is pointing to stronger near term spending growth than the RBNZ factored in to their June forecasts. On its own, that raises the risk that the 50bps of OCR cuts we have factored in later this year will not be delivered." However, consumers' short term outlook still remained more pessimistic than optimistic, although there was reduced anxiety about the short-term, Purdue said. "The lift in confidence this quarter appears to be related not so much to what has happened, but to what hasn't," she said. "Back in March, the fear factor around the economic outlook was huge. But three months on, the tone of global economic news has improved. Sure, the global economy is still in recession, but the risk of a Depression-like scenario has greatly diminished. And, here in NZ, people are still losing their jobs and house prices are still lower than a year ago, but the situation is not as bad as some disaster scenarios that were touted. That will have helped buoy confidence this quarter," she said. Despite the rise, a net 28% of respondents to the survey said they still expected bad economic times over the next year, from a net 57% in March and a net 52% in June 2008. Respondents indicated they were more optimistic about the medium term, with a net 56% saying they expected better times in the next five years. This was the highest medium term rating on record, Purdue said. "The above average result for the 5-year outlook is likely to reflect where we are in the economic cycle "“ i.e., it seems reasonable that during a recession the majority of consumers would expect better times over the medium to long term," she said. A net 30% of respondents said they expected better economic times in the long term. Your views and insights? We welcome comments and any further insights on this article and its source documents in the comments field below. Or if you want to remain under the radar please email bernard.hickey@interest.co.nz and alex.tarrant@interest.co.nz and we'll be in touch. We practice a form of collaborative journalism that aims to include the insights and expertise of our readers to improve our articles. That includes clearly identifying any errors and correcting them. We also update articles with relevant new information and commentary and will label our articles Update 2 etc. We know we don't know everything and we know we're not always right. We appreciate your help in constantly improving and deepening the knowledge and debate on interest.co.nz.