RTTNews - Consumer confidence in New Zealand rose to its highest level in 18 months in the second quarter, led by a greater improvement in consumer perceptions regarding the short-term economic outlook, a survey showed Wednesday.

The Westpac McDermott Miller Consumer Confidence Index rose to 106 in the second quarter from 96 in the first three months of the year. The index reached its highest value since the December 2007 quarter, when it was 110. Moreover, the index was above the low reading of 81.7 seen in the second quarter of last year.

An index number over 100 indicates that there are more optimists than pessimists, while a number under 100 indicates that pessimists outnumber optimists.

The survey noted that since the March quarter, the fear among people about an economic recession in the country of the magnitude seen in 1930s seemed to have passed. Despite plenty of negative economic news pouring in, in the form of higher fuel prices, deferred tax cuts, lower payout forecasts from Fonterra, rising unemployment and the outbreak of swine flu, the reality was less scary than predicted, the report said.

The housing market, where prices was forecast to drop by 20%-30% have risen in recent months, and the unemployment which was predicted to hit a high 5.5% in the first quarter reached only 5%. For most respondents, the last three months were better than expected in terms of global, housing and labor market outlooks, and confidence has lifted as a result, Westpac said.

Moreover, with more positive news expected to come, in the form of lower mortgage rates and additional incomes to households from tax cuts, consumers indicated a greater willingness to spend. A net 16% of respondents said it was a good time to buy major household items, up 6 points from the March quarter and 26 points from the same quarter last year and stood at its highest level in 18 months.

Consumers assessment about their current financial situation showed a slight improvement, with only a net 26% saying they were worse off than a year ago compared to a net 28% in the first quarter and a net 41% in the same period a year ago. Further, a net 13% expect the situation to be better in a year's time compared to only a net 6% in the March quarter.

The Reserve Bank of New Zealand in its latest Monetary Policy Statement projected a prolonged period of weakness in consumer spending, with the real private consumption forecast not to be in positive territory until March 2011.

Westpac noted that at current levels, confidence is pointing to stronger near term spending growth than the RBNZ factored into their June forecasts. On its own, that raises the risk that the 50 bps of OCR cuts we have factored in later this year will not be delivered, Westpac said. In the latest meeting, the Reserve Bank kept the Official Cash Rate unchanged at 2.5%, and indicated that it would not be raising it anytime soon.

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