NZ retail sales surge in Q4, but rates still on hold

WELLINGTON:New Zealand retail sales volumes rose by the most in six years in the December quarter, helping propel the New Zealand dollar to a 17-month high as confidence grows that the economy is lifting out of a soft patch.

Sales volumes, which strip out price movements, rose a seasonally adjusted 2.1 percent in the three months to Dec 31, well ahead of market expectations for a 1.1 percent rise. The bounce came after a revised 0.2 percent fall in the previous quarter.

The numbers followed an ANZ Bank survey on Thursday which showed consumer confidence at its highest level in 32 months.

Despite the recent upbeat data, the Reserve Bank of New Zealand is seen keeping its cash rate at a record low of 2.5 percent for a while yet.

"Overall, the message is that the New Zealand economy is starting to get traction from lower rates," said Ben Jarman, economist at JPMorgan.

"The new RBNZ governor is of the view that the economy is probably not as weak as it looks and that things can turn quite quickly when housing is very strong. That seems to be playing out," Jarman said, adding he expected a rate hike in the September quarter.

Market pricing implies no chance of a rate move at next month's review, and 25 basis points of rises over the next 12 months.

The New Zealand dollar rose to a 17-month high of $0.8519 from $0.8465 ahead of the data. Interest rate futures eased with the December contract now implying a cash rate of 3.01 percent, up from 2.95 percent on Thursday.

Volumes were driven by a 7.7 percent lift in fuel sales, the highest in four years, solid rises in department store sales, and strong demand for hardware and building supplies in Christchurch, which was damaged by earthquakes in 2010 and 2011.

Core retail sales volumes, which exclude fuel and motor sales and servicing, rose 1.5 percent.

The value of retail sales rose 1.7 percent in the quarter, with the strongest growth in the dairy region of Waikato and Canterbury, which includes Christchurch.

The quickening pace of the $16 billion rebuild of Christchurch is expected to drive domestic growth over the next three to four years, putting pressure on prices and eventually forcing the RBNZ to raise rates.

A Reuters poll of analysts shows an overwhelming majority see the next move in rates as a rise either late this year or early in 2014.

The strength of the retail data pointed to the economy having perked up in the final quarter of last year after hitting a soft patch in the middle of 2012, when it only managed an anaemic 0.2 percent GDP growth.

Other recent data has shown a lift in the housing market, with sales prices close to record levels, largely because of tight supply, and a lift in manufacturing activity to its best level in eight months.

Copyright Reuters, 2013

e>'s manufacturing market share in the United States over the last decade."

It noted that the Canadian authorities "only partially agreed" with this view, saying the decline of manufacturing was a trend among all advanced economies. The main opposition party, the New Democrats, has clashed with the ruling Conservatives on this issue, arguing that the strong currency has hammered manufacturing jobs.

The IMF said the federal government is on track to balance its budget by 2015-16, but the fiscal outlook for some of the largest provinces such as Ontario and Quebec is less certain. A priority in the medium term will be to contain healthcare costs, a provincial responsibility, it said.

The IMF urged the federal government to consider two new approaches to fiscal planning, but policy makers appeared reluctant to agree, the report said.

It suggested Ottawa publish a "fiscal sustainability report" every three to five years that would review progress by each level of government - federal, provincial, territorial and municipal on managing debt and deficits.

And a variety of measures could be adopted to soften the impact of volatile prices for oil and other commodities on the economy and on government budgets. For example, the government could put aside savings during commodity booms for use in leaner times, and exclude commodities from some of its fiscal indicators to produce more accurate projections.

Copyright Reuters, 2013