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16 Nov 2015

Consumer Confidence Up

Consumer confidence is on the rise in New Zealand, with the ANZ-Roy Morgan consumer confidence index increasing for the second month in a row after reaching a three-year low in August. While consumer sentiment is still below its long-term average, lower mortgage rates and a strong dairy sector have both helped to improve the economic outlook. According to the survey, homeowners are also benefiting from strong property values as the heated Auckland market spills over into regional areas.

The ANZ-Roy Morgan consumer confidence index is a nation-wide survey, with 1019 people asked a range of questions about their current financial feelings and future expectations. The index increased 4 points in October to a four-month high of 114.9, with the current conditions index rising slightly from 114.9 to 115.4 and the future conditions index rising significantly from 108.1 to 114.6. While only 2 percent of Kiwis expect good times ahead in the next 12 months, 25 percent expect to be in a better financial position in a year and 18 percent expect to be better off over the next five years.  

According to ANZ Bank New Zealand senior economist Philip Borkin, things are turning around after a shaky mid-year period. "Consumer confidence changed key this month and is hitting a slightly higher note... A few months back the economy was off key and losing fans. Sentiment had fallen sharply and threatened to keep falling. This rebound is encouraging. Stability in the view on current conditions is important - how consumers are feeling here and now affects spending decisions."

An increase in dairy prices has helped to drive confidence, with positive sentiment recorded in regional areas. "The biggest gains in confidence appear to be in more dairy-aligned regions" said Borkin, before adding "dairy incomes are still tight and the global backdrop is concerning." While Kiwis are undeniably looking up, according to some analysts, confidence may be short-lived if it's entirely based around dairy results. Average prices at the last two Global Dairy Trade auctions dropped in October, with wholemilk powder prices taking significant hits and import demand from China remaining weak.

Much like the consumer confidence index, conditions in the dairy industry are looking more favourable when viewed in terms of years rather than months. While the average wholemilk powder price fell to US$2453 a tonne in the last auction, Rabobank research analyst Emma Higgins is still positive about the future: "We are going to see a recovery. We will see pricing tension rise in the middle of 2016 and we are expecting (wholemilk powder) prices at the US$3200 a tonne mark by September next year."

Canterbury recorded the highest confidence reading in New Zealand, with Auckland following closely behind. While confidence was up in all regions, Wellington was the least optimistic part of the country. 31 percent of survey respondents said it was currently a good time to buy a major appliance, up from 24 percent last month.  Along with tight dairy incomes and uncertainty surrounding the industry, consumer confidence will also be challenged over the next few months by rising unemployment and concerning global conditions.

Image source: Sergey Ryzhov/