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Do weaker overseas economies pose a risk to New Zealand retailers?

  • News
  • July 16, 2015
  • Elly Strang
Do weaker overseas economies pose a risk to New Zealand retailers?

US retail sales fell across the majority of categories, from furniture to clothing stores.

It was the weakest showing since February and surprised economists polled by Reuters, who had forecast a 0.2 percent gain.

Some economists had even forecast core retail sales rising 0.4 percent.

As well as this, the US retail industry suffered a disappointing June employment report and a sharp drop in SME business confidence.

Those in the industry are regarding these less-than-stellar results as a hint at slower economic growth.

With this, plus the Organisation for Economic Co-operation reporting that the US, UK and Chinese economies are showing signs of weakening, there is a lot of worrying activity occurring overseas.

In New Zealand, electronic retail sales, which make up about 60 percent of total retail spending, rose 0.5 percent in June.

But sales flattened in core retail sectors (excluding fuel and vehicles).

Core spending was up just 0.1 percent in the June quarter, compared with an increase of 2.6 percent in the March quarter.

Despite trouble brewing overseas, Infometrics senior economist Benje Patterson says what’s happening in the US is unlikely to be an indication of what will happen to retail sales in New Zealand.

In fact, it could even benefit them.

“If the US economy did slow more than we are anticipating, then this could pause the depreciation of the New Zealand dollar against its US counterpart – a situation which would take some pressure off retailers’ margins,” Patterson says.

The Kiwi dollar rose to 67.04 US cents on Wednesday due to the decline of US retail sales.

As of today, it has now dipped back down 65.50 US cents.

One of the risks Patterson says could occur is that slower growth in the US economy could unsettle consumer confidence in New Zealand.

“But realistically, domestic consumers will be more concerned with issues such as housing and dairy prices if they are in a regional centre,” he says.

According to ANZ’s latest Roy Morgan consumer confidence index, consumers aren’t in the best of spirits.

It says consumer confidence has hit a three-year low this month.

ANZ senior economist Philip Borkin says there’s a need to keep a close eye on the economic ‘weather conditions’, as there’s a possibility it can get cooler.

"But the embers to re-ignite the economy are still evident," Borkin says.

It’s still regarded as a good time to buy a major household item, although this is the lowest score in 18 months.

Patterson says as consumer demand in New Zealand has started to slow, so has demand growth.

However, he says retailers shouldn't be disheartened.

“Nevertheless, given that employment conditions are still in relatively good shape and spending by visitors in the hospitality sector on the up, retail sales growth will remain in positive territory,” he says.

He expects the US dollar to grow at a moderate rate over the rest of 2015.

​ ​

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