Auckland’s sudden move to alert level 3 is expected to have a ripple negative effect on retail spending across the country – but the question is: for how long?
Economists are predicting a sharp drop in spending this week, in categories outside of consumables, as consumers tighten their purse strings amid uncertainty of a potential widespread community outbreak of Covid-19.
Retail spending fell 0.4 per cent in January, though remained up 1.9 per cent on the same time last year, according to the latest figures from Stats NZ.
Core spending excluding vehicles and fuel, however, fell 0.7 per cent in January, and that followed declines in November and December, down 0.6 per cent and 0.9 per cent.
Data released last week shows spending in the retail industries fell by $24 million in the month of January compared to the month prior in December.
Economists forecast spending will fall further in February in response to the country’s latest upgrade in Covid-19 restrictions and remain cautious about uncertainty ahead.
ASB senior economist Jane Turner said there was no doubt spending would stall this week as a result of upgraded restrictions, but just how long this would continue was unknown.
“We are going to see a bit of a fall in February, how big that fall will be will depend on how long the lockdown will go for. There were a few headwinds facing the retail sector prior to this; [stalled] population growth because of the cap on immigration and the impact of tourism activity from foreign tourists,” Turner told the Herald.
Like previous lockdowns that affected Auckland – which accounts for 38 per cent of the New Zealand economy – spending stalled, but it was not lost. Turner said it was put off to a later date and subsequently the economy experience a spending splurge in the months following restricted restrictions.
She picks the same thing will happen again this time: “What we’ve seen from the past lockdowns is that a lot of spending is typically deferred so we do see a decline but often there is a strong catch up in the next month or whenever the lockdown is lifted.”
While retail spending on durables and larger ticket items are expected to be caught up once restrictions were lifted, the spend that would have been gone on hospitality is lost.
“If we look back at August, and we look at the monthly electronic card spending figures, core retail spending fell 6.4 per cent over August, but then it lifted 6.4 per cent in September so there was that quick rebound and catch-up,” said Turner.
Economists say the wind was already beginning to “come out of the sails” of the country’s retail sector as months of impressive spending figures. But fear among the latest community cases could accelerate this further.
In a note, Westpac said it had expected a 0.2 per cent drop in spending in January.
Seasonally adjusted spending figures fell over November, December and January.
“It was possible we would have seen further small declines,” she said.
“We had already started to see a bit of a slowdown or a pullback in the trend in retail spending through summer, and some of that was expected because this is the peak time for overseas tourists to be visiting and that would normally be supporting quite a lot of that retail activity, so without that and just New Zealanders, that was going to decline.”
Hospitality, however, had held up better than economists had hoped over the peak summer months, Turner said.
“What we will see is quite a large fall [in spending] on bigger items that consumers typically want to go into a store and look at and negotiate on.
“We will see a hefty dip, followed by a sharp recovery as soon as restrictions are eased,” she predicted for the next few months.
With Auckland now operating under alert level 3, that would have a “reasonable” impact on GDP and the economy, Turner said.
Economists in recent months had been learning just how resilient the New Zealand economy was and how quickly businesses had adapted to changes, she said.
“We’ve seen over the past year, New Zealand’s economic performance has outstripped many of our peers and that’s probably because of our approach to Covid.”
Covid effect on online spending
According to data by NZ Post, online shopping ballooned by more than $1 billion last year.
Spending online was up by $1.2b to $5.8b compared to 2019, according to the state-owned enterprises most recent e-commerce report.
In December, online spending increased by $538 million, up 17 per cent on the year before.
The report stated that 53 per cent of the country or 2.17 million people shopped online last year, and approximately 300,000 of these were first time online shoppers.
Online spending rose the most among those aged over 60, and the biggest spending months were recorded in May and November.
More than $600 million was spent in May last year, while $584m was spent in November.
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