New Zealand Retail

New Zealand

New Zealand: Retail sales experience sharpest contraction in more than 13 years

December 14, 2010

Retail sales slumped in October, falling 2.5% over the previous month in seasonally adjusted terms, as the goods and services tax (GST) was raised from 12.5% to 15.0% at the start of the month dampening sales. The drop, the sharpest since May 1997, contrasted the revised 1.7% expansion observed in September (previously reported: +1.6% month-on-month) and market expectations of a 0.8% increase. The monthly fall was the result of lower sales of big-ticket items, in particular motor vehicles (-12.6% month-on-month), as well as furniture, houseware, and textiles (-27.8% mom), as consumers had advanced purchases of these goods ahead of the tax increase. Over the same month last year, retail sales decelerated markedly growing only 0.6% in October, which was well below the 4.6% expansion observed in September. As a result of the slowdown, annual average retail sales inched down from 3.9% in September to 3.8% in October, reversing the upward trend in retail sales that began 12 months ago. Meanwhile, the Treasury has recently cut its growth forecast, amid weaker than expected economic activity. The New Zealand Treasury expects the economy to expand 2.2% in the fiscal year 2010 (ending March 2011), down from its previous 3.2% estimate. For fiscal 2011, the Treasury sees the economy picking up to 3.4%. The Reserve Bank of New Zealand is less optimistic and expects the economy to expand 1.7% the fiscal year 2010 and 2.7% in fiscal 2011.

Author:, Senior Economist

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