March quarter retail sales

Retail sales (volume of goods sold): +0.9% (Prev: +0.9%)

Westpac f/c: +0.2%, Market: +0.5%

Core retail sales (volume of goods sold): +1.0% (Prev: +1.4%)

Nominal retail sales: +2.2% (Prev: +1.4%)

Year to March

Volume of goods sold: +4.5%

Nominal sales: +6.1%

Consumer spending recovery remained intact pre-war

Today’s official retail sales report pointed to a solid lift in consumer spending in the March quarter, maintaining the pace seen in the December quarter and continuing the retail sector recovery that began in late 2024.

Nominal spending rose by 2.2% over the quarter and is up 6.1% on the same time a year ago. Some of that growth is due to higher prices (notably the sharp lift in fuel prices during the March quarter). Stats NZ estimates that the volume of spending increased 0.9% over the quarter and was 4.5% higher than a year earlier.

Turning to the detail, the strong growth in tourist arrivals contributed to today’s result, with the volume of spending on accommodation rising 6.1% over the quarter following a similar increase in the prior quarter. In addition, spending on food and beverage services increased 1.3% during the quarter. The largest contribution to growth came from a lift in supermarket and grocery stores, but this followed declines in each of the previous two quarters. Spending on footwear and apparel fell, as did spending on recreational goods. This may reflect early reaction to the Middle East conflict, although these falls do come after solid growth in the previous quarter.

Looking regionally, nominal data continues to point to stronger growth in the South Island – unsurprising given its greater exposure to the well-performing tourist and rural sectors. Spending in the South Island was 8.1% higher than a year earlier, led by a 12.3% increase in spending in the Otago region. By contrast, spending in the North Island increased 5.2%.

Outlook

Over the past two months the conflict in the Middle East has led to a sharp decline in consumer confidence and a squeeze on household discretionary incomes. Electronic transactions data released earlier this week pointed to a sharp pullback in spending in April, with spending at core store types declining for a second consecutive month. This is consistent with our view that the current quarter is likely to be a much tougher one for retailers – especially those selling discretionary items. And it is consistent with our view that the economy overall is likely to contract modestly during the quarter.

What happens over the second half of the year and beyond will depend on how the Middle East conflict evolves and how the RBNZ responds to the near-term spike in inflation. A prolonging of the conflict beyond the middle of this year – which we think would inevitably lead to new highs in energy prices – or an aggressive RBNZ response to perceived medium-term inflation risks, would weigh further on the retail sector. On the other hand, consumer confidence could rebound quickly if the conflict ends, even if energy prices remain high for a period, especially if greater certainty leads to a resumption in hiring.

Implications for GDP growth

We’re forecasting GDP growth of 0.8% in the March quarter. Today’s result was ahead of our expectations, although not enough to cause us to change our GDP forecast. We’ll take a closer look at how GDP growth is shaping up over the next couple of weeks as additional data on March quarter activity is released.

Darren Gibbs, Senior Economist

P +64 9 367 3368

M: +64 21 794 292

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