Discretionary spending rebounds as confidence lifts into 2026
Retail spending is picking up heading into 2026, with Westpac card data showing households are opening their wallets more as borrowing costs drop and confidence improves.
With mortgage rates sharply lower than a year ago, households are slowly regaining spending power, creating a more supportive backdrop for retailers.
“Spending appetites are on the rise, and this isn’t just a seasonal holiday pickup,” said Kelly Eckhold (pictured), Westpac chief economist.
Spending appetites hold firm through December
After a sharp rise in November, spending on Westpac‑issued debit and credit cards remained firm in December, and not just because of Christmas trading.
On a per person basis, “spending on Westpac-issued debit and credit cards was up a hefty 6% in December compared to the same time last year. Even allowing for the continued march higher in retail prices, that’s a healthy rise,” Eckhold said.
December’s strong result followed a large rise in November, which was “boosted by the increasing prevalence of sales events like Black Friday and Singles Day which saw some households bringing their normal holiday spending forward into November. However, spending levels have held up even following those events.”
Discretionary spending continues to climb
The recent lift has been broad based across retail categories, with discretionary areas showing particular strength.
“Notably, while we are spending more on essentials like groceries and fuel, the biggest gains have been in discretionary areas. That includes a sharp increase in spending on dining out. We’ve also been spending more on furnishings and other items for the home.”
Westpac notes that “those increases in discretionary spending chime with the lift in consumer confidence in the latter part of the year and are an encouraging sign for 2026.”
Conditions are still uneven, however.
“While the overall picture for the retail sector is looking firmer, retailers in some industries are still dealing with tough trading conditions," Eckhold said. "One sector where conditions have been particularly challenging is the apparel sector. With strong competition among local retailers and growing competition from low-cost offshore and online retailers, spending growth in the sector has remained soft.”
Spending up across the country
South Island regions with “strong rural backbones, like Canterbury, Otago and Southland, have continued to see the strongest spending growth.” Strong commodity export prices over the past year have “boosted incomes and sentiment in many rural regions,” which has “been flowing through to increases in spending, both on and off the farm.”
However, the upturn is no longer confined to rural areas. “Spending has been on the rise right across the country, with metro areas like Auckland and Wellington also recording solid increases.”
The bank says “that lift in spending in metro regions (and elsewhere) has been supported by the sharp falls in interest rates over the past year, which are continuing to gradually work their way through the economy.”
RBNZ on hold, but lower rates still flowing through
Eckhold said the recent rise in spending is largely being driven by the sharp decline in mortgage rates over the past year, but noted the Reserve Bank signalled at its November meeting that the easing phase is probably over and some home loan rates have already started to edge higher.
But the impact of earlier cuts is still working through. “Most New Zealand mortgages are fixed for a period, and many are still on the relatively high rates that were previously on offer,” the Westpac economist said.
“However, increasing numbers of mortgages are now coming up for re-fixing, with around a third of fixed rate mortgages due to roll over in the first half of this year alone. When borrowers do refix, many will roll on to much lower rates. For instance, over the past year the one-year mortgage rate has fallen by nearly 110bps, while the two-year rate is around 210bps lower than in 2024.”
Westpac expects that “ongoing rollover on to lower mortgage rates will help to boost disposable incomes for an increasing number of households over the coming year. And we expect that will also boost retail spending appetites.”
Access the full Westpac report here.
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