A key opinion measure announced yesterday suggests the Government is in danger of heading for defeat at next year’s General Election.
A fall in Westpac’s Consumer Confidence index to levels even lower than those previously seen on the eve of the Palmer-Moore Labour Government’s defeat in 1990 and the Clark Government’s defeat in 2008 is bad news for the Beehive.
Consumer confidence is a key metric, closely watched by political strategists looking for an insight into the current mood of the electorate.
National’s Finance spokesperson, Nicola Willis, asked Finance Minister Grant Robertson about the fall in the index during Question Time in Parliament yesterday.
Robertson conceded that the index had only got this low twice before.
“We’re very well aware on this side of the House just how tough things are for many businesses and households at the moment and that’s the reason why the Government has put so many resources into supporting particularly those in low and middle income households but also on businesses as we’ve gone through the COVID-19 pandemic,” he said.
But to make matters worse, last night a Roy Morgan poll asking similar questions in Australia to those asked for Westpac by Dermott Millar, found that consumer confidence there was rising.
The ANZ-Roy Morgan Consumer Confidence were up 1.3pts to 81.7 this week.
In a commentary, the polling company said: “Despite the increase, Consumer Confidence is still a significant 30.7pts below the same week a year ago, and is now 12.9pts below the weekly average of 94.6.”.
Westpac senior economist, Satish Ranchod, said the Westpac McDermott Miller Consumer Confidence Index fell 13 points in the June quarter to a level of 78.7.
“Confidence has only come close to these sorts of lows twice before – first during the recession in the early-1990s, and then again during the Global Financial Crisis in 2008/09,” he said.
“Large numbers of households have told us that their financial position has deteriorated in recent months, and many expect that it will continue to weaken over the coming year.
“That’s despite the introduction of policy measures to limit the pressure on living costs, such as the reduction in the fuel tax and halving of public transport charges.
“And it’s not just their personal financial situation that’s got households worried. Increasing numbers of New Zealanders also expect that economic conditions more generally will deteriorate over the next few years.”
In New Zealand, the drop in confidence, would seem likely to soon make itself felt in shops.
“the number of households who think it’s a good time to make a major purchase has collapsed, dropping to the lowest level on record,” Ranchod said.
“At the same time, households have reported that they have scaled back their spending on leisure activities (like dining out) even as health restrictions have been gradually wound back.”
But the Government faces a dichotomy; if it repeats initiatives like the $350 a month for people earning under $70,000, it runs the risk of further sotking the inflatyion which is partly responsible for the loss of consumer confidence to begin with.
ACT leader David Seymour challenged the Prime Minister on exactly this point during Question Time.
Seymour: “Does the Prime Minister believe New Zealanders are able to see the blatant contradiction between taking advice that giving $350 to a whole lot of people is inflationary and trying to claim that her policies are not inflationary?”
Jacinda Ardern: “Treasury is differentiating from different types of payments and pointing out—because, of course, they recommended using the benefit system for a one-off payment—that there are ways to do this that have less of an inflationary effect than, say, for instance, broad-based tax cuts.”
Ardern then went on to say inflation was a global phenomenon.
“The member only need look at what is being experienced globally,” she said.
“OECD inflation is averaging 9.2 percent the EU is roughly 8 percent.
“New Zealand at 6.9 percent, yes, is high and we must do what we can to support New Zealanders through this period, but to argue that it is Government spending decisions that are driving those increases in inflation is patently wrong.”
In fact the Reserve Bank also made that same accusation in its latest Monetary Policy Statement.
“Government spending, as outlined in the 2022 Budget, is very high,” it said.
And: “. The current level of fiscal spending is contributing to a modest increase in demand. This is expected to diminish over time as a result of the end to the large, broad based, fiscal support packages the Government delivered during the initial phase of the COVID-19 economic response.”
The Reserve Bank has responded to the rise in inflation by raising the Official Cash Rate which is now flowing into mortgage payments and is one of the reasons why consumer confidence has dropped.
Ironically,Ranchod argues that confidence drop might mean the Bank may not need to be heavy about upcoming Official Cash Rate increases.
“There are big questions about how quickly economic activity will slow and just how far the Official Cash Rate will need to rise,” He said.
“The RBNZ’s own projections show the cash rate rising to 3.9%, while financial markets have started to price in the chance that it could go as high as 4.5%.
“We agree that there’s a substantial amount of work still to be done to bring inflation pressures back into check.”
However, if there is a more abrupt slowdown in spending than the RBNZ anticipates, then it’s likely that increases in the cash rate will be more measured.
“And the pace and extent of the fall in consumer confidence certainly raises the risks of a sharper slowdown in demand.
“Consistent with that, we continue to forecast a peak in the cash rate of 3.5%.”
Given that the current OCR is only two per cent and that over half of the country’s mortgages need to be reset this year, the potential for the Reserve Bank to further dampen confidence remains high.
It is going to be a hard 16 months or so for the Government as they head to the election.