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Retail sales disappoint

Retail sales disappoint

(See attached file: NZ_retailtrade_15feb08.pdf [full release with charts])

New Zealand's retail sales growth came in below expectations in the December quarter. Retail trade volumes rose just 0.3%q/q (JPMorgan 0.5%, consensus 0.6%) in 4Q, after a weak 0.2% gain in 3Q. Retail trade in New Zealand continues to track changes in petrol prices (chart), and the weaker than expected quarterly outcome adds some downside risk to our conservative 4Q GDP growth forecast of 0.6%q/q. It appears the lethal cocktail of rising fuel and food prices, mixed with elevated interest rates, is crimping consumer demand.

Of the 24 industries, 13 had increases in retail volumes, and 11 recorded declines. Over the December quarter, the main contributor was again automotive fuel retailing, with prices in the industry at their highest level since mid-2006. Clothing and soft-goods also recorded a solid gain in volumes over the quarter. In value terms, retail sales rose 1.9%q/q, after a 0.6% gain in 3Q. The core retailing group (excluding vehicle-related industries), however, rose just 0.4%q/q.

Retail sales over the month of December also came in on the weaker side of expectations, rising just 0.1%m/m, after a downwardly revised 1.7% gain in November. Excluding motor vehicles, retail trade rose 0.3%m/m (motor vehicle retailing fell 2.4% due to rising fuel prices).

Retail trade and hence broader consumption growth is definitely slowing in New Zealand. The faltering housing market (chart) and current drought in New Zealand's key dairy producing regions is also causing the consumer to tighten their purse strings. The recent run of weak data and rising concerns around the dairy industry has significantly reduced the chance of a further RBNZ rate rise in this cycle. That said, it is still far too early to call for an RBNZ easing. New Zealand's inflation trajectory - and inflation expectations - compounded by the government's expansionary fiscal stance are still two key concerns for the central bank.


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