Consumer confidence falls to lowest level in two years after quake, Westpac and McDermott Miller say

Consumer confidence has fallen to its lowest level in two years following the Christchurch earthquake, according to the latest Westpac McDermott Miller Consumer Confidence Index.

The quarterly index fell 10.4 points in March to 97.9 from 108.3 in December.  An index number over 100 indicates there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists. It's the weakest result since 96 in March 2009 when the world was mired in the global financial crisis.

“Consumer confidence plummeted following the devastating 22 February Christchurch earthquake”, said senior Westpac economist Dominick Stephens.

“The fall in confidence was across the board – geographically, by age, income group, and sex.”

“Consumers are much more pessimistic about the near-term economic outlook," Stephens added. "While their assessment of their personal financial situation held up a lot better, this fall in economic confidence leading up to the Reserve Bank’s monetary policy decision on 10 March offers retrospective support for the Reserve Bank’s confidence-boosting 50 basis point interest rate cut.”

Westpac and McDermott Miller said that out of respect for the situation in Christchurch following the quake, Christchurch households were not interviewed for the March survey. Instead, extra households from the rest of Canterbury were interviewed.

A net 46.5% of survey respondents now expect bad economic times over the next year, up from 9.7% in December.

A total of 1577 interviews were conducted for the survey between March 1 to 13. The margin of error in the survey is 2.5% at a 95% confidence interval.

The Westpac-McDermott Miller survey follows the release of the ANZ-Roy Morgan monthly consumer confidence survey yesterday, which showed a near 7 point drop to 101.4 in March from 108.1 in February. It was also that survey's lowest level since March 2009.

And here's Grant Thorton's take on business confidence:

New Zealand business confidence, hit by the recent Canterbury earthquake and further impacted by the Japanese tsunami and nuclear reactor problems, is expected to return to its growth path fuelled by the massive rebuild of Christchurch and favourable international winds.

New Zealand business confidence levels had grown from +35% to +44% in the three months prior to the earthquake, according to the 2011 Grant Thornton International Business Report just released. The survey is conducted amongst over 5700 privately held businesses across 39 economies.

It showed that overall, global confidence is at its highest since the beginning of 2008 at +34% for the first quarter of 2011. New Zealand sat well above the global average.

Greg Thompson, National Director, Tax, for Grant Thornton New Zealand, said that the Canterbury earthquake has definitely dented business confidence in this country, but he saw this as being short-term due to other external factors.

“The cost of the Canterbury rebuild is estimated by some sources such as the Canterbury Employers Chamber of Commerce to be upwards of $30 billion and every effort is being made to ensure there are no delays in starting this process.”

Japan’s rebuild could also hold a silver lining for New Zealand because of the expected demand for timber and aluminium, two of our main exports to that country.

“Just as in Canterbury, the speed and size of the rebuild in Japan will be impressive,” he said.

The other key factors are the continued lift in global commodity prices and the surge in international business optimism.

“While there was a drop in the last round of prices at the milk powder auction, prices are still up 17.5% for the year. This demand is also mirrored in many of our other exports, especially primary products, where we are struggling to satisfy an insatiable global demand. “We also know that hosting the Rugby World Cup will bring confidence to the New Zealand business sector.”

Between the last quarter of 2010 and the first quarter of this year the G7 group of economies saw an upswing of 16 percentage points in optimism about the prospects for their country's economy with the United States showing strong growth.

The report showed that the United States, still the biggest economy in the world with a GDP nearly three times that of China, witnessed a surge in optimism, up 19 percentage points. Italy registered a 30 percentage point upswing and Japan, although still the most pessimistic of all economies surveyed, increased its business optimism by 13 percentage points.

“Japan’s confidence will take a nose dive following the earthquake and tsunami of last week but its overall impact on global confidence is expected to be insignificant over the longer term. The surge in confidence in the United States will be the key driver for a growth in world confidence,” he said.

(Update adds Grant Thornton's announcement).