Australia | Dec 04 2006
By Chris Shaw
Australia’s drought shows no signs of letting up, Commonwealth Bank’s Craig James pointing out many regions experienced their warmest and driest spring weather on record and Perth remains on course for its driest year ever.
This suggests downside for the nation’s growth rate, with James estimating it could cut as much as 1.5% from GDP thanks to both direct and indirect effects. The direct effect is the likely fall in farm output, which is already being indicated by data such as the cuts in forecast wheat production for the year, while indirectly it will flow through and impact the retail, transport and services sectors.
James also points out one other trend, which is the drought and prevailing warm weather is prompting consumers to bring forward their seasonal purchases, which rose strongly in October and looking like recording similar gains in November. This, he suggests, is masking an overall slowdown in the retail sector, meaning some estimates of the strength of consumer spending are too high and likely will be adjusted down in coming months.
In James’s view a better measure of the health of consumer spending is to look at the trend estimates, which have fallen from monthly growth of 0.7% at the start of the year to just under 0.4% in October. With no significant change in conditions expected in the short-term James expects this trend will continue into the New Year.
While James expects the headline number to show retail spending of almost $24bn this Christmas, which is an increase of around 6% from last year, he points out this is a reflection of higher prices rather than stronger sales.