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New Zealand’s Q2 Retail sales surges strongly

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Summary:

  • New Zealand quarterly retail sales rise 1.1%, above estimates of 0.4%
  • Annual retail sales rise 3.1%
  • Better than expected retail sales raises prospects of a stronger Q2 GDP growth

The latest retail sales report from New Zealand covering the second quarter showed an upbeat outlook for the activity. Retail sales surged more than expected and the data helped to push the Kiwi dollar higher as a result.

On a volume adjusted basis, New Zealand’s retail sales rose to a seasonally adjusted basis of 1.1% during the second quarter, official data showed last week. This was higher than the estimates which pointed to a 0.4% increase.

The first quarter’s retail sales were also revised higher to show a 0.3% increase, up from the initially reported print of 0.1%.

The official data released by Statistics New Zealand showed that on an annual basis, New Zealand’s retail sales increased 3.1% on the year.

Based on the report, retail sales increased in 11 out of the 15 industries on a sales volume basis.

Some of the industries posting gains included hardware, building and garden supplies which surged 4.7% during the quarter. This followed a subdued pace of increase of 0.6% in the first quarter.

Sales of food and beverage services increased 1.7% during the period and posted a rebound from the 1.0% decline from the first quarter.

Sales of department stores rose 2.8% while sales of electrical and electronic goods increased by 2.0%.

Among the sectors that showed a decline, supermarket and grocery store sales fell 1.1% in the June quarter. This came after a 1.0% increase in the first quarter.

Sales of fuel also declined by 0.7% during the quarter. This was the fourth consecutive quarterly decline in the sector.

The second quarter retail sales report certainly beat estimates and also raised the prospects of a rebound in the second quarter GDP. Expectations also increased that the second quarter GDP could possibly overshoot the RBNZ’s forecast of a 0.5% increase.

The retail sales report for the second quarter also scaled back the risks of a slowdown in the economy. This could have potentially prompted the officials at the Reserve Bank of New Zealand to cut its overnight cash rate (OCR) to fresh lows from the current 1.75%.

The RBNZ has left interest rates steady at 1.75% for the past 13 monetary policy meetings. The previous rate cut to the overnight cash rate was delivered at the November 2016 monetary policy meeting.

Economists noted that the strong retail sales volume was consistent with showing a 0.9% increase for the second quarter GDP. This is expected to raise the bar higher for the prospects of a rate cut from the RBNZ.

The expected second-quarter GDP could also be a welcome acceleration in the economy given the 0.5% increase in the first quarter.

The RBNZ’s governor, Adrian Orr had earlier flagged the downside risks to the GDP projections. He said that growing weak confidence in business could undermine growth.

Any further slowdown in the economy would, therefore, tip the balance toward an interest rate cut.

The second quarter GDP report is due out on September 20. This is later followed by the RBNZ’s monetary policy meeting that is due on September 27. Given the uptick in the retail sales report, the chances are high that the RBNZ could potentially maintain its forward guidance unchanged.

This comes as the quarterly inflation rate increased at a slower pace of 0.4% pushing the annual inflation rate to just 1.5%. This remains below the central bank’s target of 2.0% – 3.0% inflation band.

Still, with the exception of inflation, other metrics were fairly positive, including the labor market report for the second quarter.

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