Recession fears as survey shows record 20 percent of Kiwis plan to cut spending

An economist has warned the New Zealand economy could slip into recession as survey results show a record amount of Kiwis plan to cut their spending.

In his latest economic newsletter, economist Tony Alexander wrote a record 20 percent of the 1048 people asked in his latest Spending Plans Survey for May planned on cutting spending in the next three to six months. 

The survey results for the previous three months had been around 11 percent but previously throughout 2021, the data indicated Kiwis would spend more. 

Recession fears as survey shows record 20 percent of Kiwis plan to cut spending
Photo credit: Tony's View Spending Plans Survey

Alexander warned the New Zealand economy could easily slip into a "recession". 

"A time of intense household spending restraint is now here," Alexander said. 

"With such spending typically accounting for up to two-thirds of overall spending in the New Zealand economy, unless exports, business investment, and/or government spending strengthen, the economy could easily slip into a recession later this year – though not a deep one considering the strong levels of construction activity, high job security, and good export prices." 

The soaring cost of living, rising mortgage rates, falling house prices and overseas issues like Russia’s invasion of Ukraine are all likely to be factors contributing to people's unwillingness to spend, Alexander said. 

He warned the results are "negative news" for retailers, especially businesses involved in home renovations, furniture, and eating out, but it's not all doom and gloom.

"The good news is that the Reserve Bank is seeing the weakness it wants in consumer spending as a means of encouraging businesses not to raise their selling prices and accede to high wage demands," he wrote. 

Where will people spend less?

An area that could be hit hard by Kiwis reining in their spending is hospitality with survey results showing 25 percent of people plan to reduce spending on eating out. 

"History tells us that in times of budgeting stress people will first look for cost savings by cutting something which in the past was considered a luxury – eating outside of the home," Alexander wrote.

"Plans for eating out collapsed at the start of this year and have not improved to any meaningful degree despite the passing of most pandemic rules."

Recession fears as survey shows record 20 percent of Kiwis plan to cut spending
Photo credit: Tony's View Spending Plans Survey

Home renovations boomed during the COVID-19 pandemic with survey results since they began in June 2020 all being above 17 percent for Kiwis spending more in this area. 

But the results have tailed off in 2022 and for the first time, more people say they will cut spending on home renovations rather than increase it. 

"This does not mean that operators in the sector will necessarily experience a substantial decline in orders in the near future," Alexander wrote. 

"At this stage, it seems reasonable just to conclude that the growth is over. Active decline however is highly likely before the end of the year."

Where will people spend more? 

Spending won't be reduced in all areas with international and domestic travel, groceries and shares all expected to see an increase. 

Many respondents noted the reason for an increase in spending on groceries is because prices have gone up significantly meaning they have no choice but to allocate more of their weekly pay to supermarket costs. 

The latest Stats NZ figures released in April showed food prices were 7.6 percent higher in March 2022 compared with March 2021, the highest annual increase in over 10 years.

Kiwis are still planning on getting out and exploring New Zealand with nine percent of respondents planning to increase their spending on domestic travel but this is down from 17 percent in April.  

International travel is expected to experience a boom now that New Zealand's borders have re-opened to the world but this could impact other areas where Kiwis might normally spend. 

"A record 13 percent of people plan to increase their spending on international travel," Alexander wrote.

"This allocation of extra spending to something which tends to be relatively expensive and non-essential is likely to be actively taking money away from other areas of expenditure such as eating out, home renovations."

Alexander said even though the results show Kiwis plan to rein in their spending, there is no downward trend in the proportion of people saying they will spend less because they are worried about their incomes. 

"This is how the current period of downturn differs from many in the past – job security is good," Alexander  said.  

Of the 1048 people who survived, five percent of respondents were below the age of 30, 34 percent between 31-50 and 62 percent older than 50.