Household consumption expenditure

IBISWorld forecasts household consumption expenditure to climb by 2.5% in 2023-24, to total $177.7 billion. The heightened cost of living, triggered by global events like the COVID-19 pandemic and extreme weather, has increased household consumption expenditure over the past few years. Spending patterns have changed as high inflation bumped up household expenditure. Households spend more on essentials, like food, housing and household utilities and less on communication and recreation. Increased households are prioritising personal contributions to their saving schemes. The Reserve Bank of New Zealand (Te Putea Matua) has kept the official cash rate (OCR) elevated in an effort to put downward pressure on inflation. High interest rates have put pressure on household budgets, slowing otherwise strong growth in household consumption expenditure over the current year.

In 2019-20, the pandemic stunted household consumption growth, causing expenditure to fall by 11.4% in the June quarter of 2020. Expenditure again fell by 6.8% in the September quarter of 2021. These declines in expenditure were a result of lockdowns and border closures. In 2020-21, the unemployment rate climbed, with plunging demand in sectors like tourism and hospitality pressuring businesses and their ability to retain staff. Heavy lockdowns and restrictions have significantly weakened consumer spending on sectors like tourism and hospitality, which has led household expenditure to drop in 2020-21.

Population growth and disposable income are the main factors determining long-term household consumption expenditure. The New Zealand Government's (Te Kawanatanga o Aotearoa) strict international border controls throughout the pandemic slowed migration into the country, constraining a key avenue for household consumption expenditure growth.

Despite slowing migration growth, household consumption expenditure hiked in 2021-22. Several measures by the New Zealand Government (Te Kawanatanga o Aotearoa) have supported consumer incomes during the pandemic, offsetting the rising unemployment rate. These measures include the Wage Subsidy Scheme, which enabled employers affected by COVID-19 restrictions to continue paying their employees. A recovery from lockdowns and expanded consumer savings have strengthened household consumption expenditure in 2021-22. However, growth in household consumption expenditure has slowed in 2022-23. Inflation and a corresponding spike in the official cash rate have boosted interest payments in New Zealand, threatening household purchasing power in recent years. The recent cost of living pressures have encouraged consumers to tighten their budgets and spending. Overall, IBISWorld forecasts household consumption expenditure to hike at a compound annual rate of 2.6% over the five years through 2023-24.