Australia | Apr 01 2009
By Chris Shaw
Australian retail sales data for February have given evidence the fiscal stimulus measures being introduced by the Federal Government are working, as in the view of ANZ Banking Group economist Dr Alex Joiner if these measures had not been taken Australia’s economic performance would be looking more like that of the US or the UK at present.
Dr Joiner notes retail sales for the month were down 2.0%, which was well below market expectations for a fall of 0.5%, an outcome he suggests may be explained in part by donations to bushfire and flood victims reducing the level of household disposable income.
He also suggests the data show consumers are saving rather than spending at present, which suggests the case is being made for further stimulus measures to be introduced in coming months. Joiner expects the next round of measures to be announced in the Federal budget in May.
The data also strengthen the case for a further cut in interest rates when the Reserve Bank of Australia meets next week, a move expected by TD Securities global strategist Stephen Koukoulas. In his view while the consumer side of the Australian economy is weak, today’s data show the Australian recession is being driven by weaker business investment and global events, as evidenced by the very weak non-housing construction numbers, which were down 7.3%.
In contrast, house building approvals rose 7.8% in February but as Joiner notes this was on the back of a strong increase in apartment activity, which could easily be reversed next month. Koukoulas points out building approvals are still down 25% from this time last year.
The weak non-housing number implies weak business investment levels and Koukoulas estimates a decline of as much as 25% this year is possible, which supports the argument for an interest rate cut of 0.5%. In Joiner’s view while there is a case for cutting rates next week the central bank may choose to stay on hold and see how the data flow in coming weeks.
According to Westpac senior economist Matthew Hassan, the fall in retail sales reflects the fact the government’s latest fiscal boost has now flowed through, so March numbers are likely to also show a weakening trend as the next fiscal stimulus measures are more of a drip-feed process than a one off boost and consumers are likely to save more of what they receive.
This would suggest a difficult time for the department stores in particular, as ANZ’s Joiner notes while overall retail sales for February were down 2% they were off 9.8% in this category.
