Australia | Jun 14 2012
By Andrew Nelson
In stark contradiction to recent macro reads on the Australian economy, which seem to be indicating the national economy is still on a stable footing, Australian retailers have continued to struggle since Canberra’s post-GFC cash handouts were spent.
The problem is consumer confidence never really recovered and workers are still worried about keeping their jobs, which has fed through to lower retail lending rates and an overall general reluctance to part with hard earned cash at the shops.
With Europe still in the throes of economic turmoil, the faltering US recovery still faltering and with sure signs of a slowdown in China, it’s no wonder investors and even the man on the street remain worried. This has resulted in a renewed rush to the US dollar and the safety of government bonds (excluding those from Greece, Spain, Italy and Portugal to name a few).
However, economists from management consulting house Deloitte Access Economics are seeing little rays of sunshine emerging for Australia’s retail sector and have outlined these views in the latest edition of their Retail Forecasts publication, dated May 2012.
One of the main harbingers of glad tidings is interest rate reductions, with Deloitte noting the rate cuts that started happening from late last year definitely helped to lift spending, at least in the in the early part of 2012. In fact, retail sales were up 1.8% in the March quarter in inflation-adjusted terms and overall retail sales growth is now at its strongest since the end of 2009, which is when the aforementioned post-GFC stimulus wound back down.
The RBA cut the official cash rate by a further 50 basis points at the start of May, with most in the market expecting several more rate cuts to over the remaining months of 2012. The central bank followed up with a more cautious 25 point cut this month. Deloitte predicts future cuts will help to free up a nice sized slice of extra disposable income.
Economists from Deloitte note the latest Federal Budget should also prove helpful to the retail outlook. A primary example is the extra payments for school age children and increased family welfare spend. However, this latest round of government largesse will likely only provide a boost to retailers over the shorter term.
One of the main problems the economists see is that the global economic backdrop is far from encouraging present, which could see potential customers paying down existing debt and keeping a bit of a wedge in the wallet rather than running out to buy a new pair of Nikes. Deloitte expects consumer confidence will likely to remain in the danger zone given both the Australian share market and Aussie are slipping as money is redirected in to safer havens.
Still, the economists predict that the likely run of continued interest rate cuts coupled with the announced budget handouts will help the retail sector to book at least some level of upward momentum in the months ahead.
Supporting this assumption is the fact that wages growth is picking up and employment levels are slowly improving, which of course would help to push retail growth at what Deloitte expects will be a reasonable level over 2012 and into 2013. Retail sales growth in 2010-11 was just 0.7%, which was a two decade low. However, the consultant expects to see that rise to 2.0% growth in 2011-12, and then continue up to 3.0% growth in 2012-13.
On a state by state basis, Deloitte points out that Western Australia continues to outpace the pack, while resource rich Queensland and the Northern Territory are also doing better than the non-resource states. The consultant expects the gap between resource states and non-resource state will widen through 2012-13, especially since resource driven capital expenditure will be one of the main drivers of Australia’s growth over the next year. However, the consultant warns that risks continue to abound, especially in relation to the global economy.
Yet Deloitte’s outlook is far from weak, with the consultant’s longer term outlook for retail still penciling in solid gains, albeit still well short of historic trend rates for sales growth. Slower growth in individual wealth will cap the upside for the near to mid-term, while slowing population growth will also serve to limit retail upside going forward. That said, some of the latest migration figures are showing an increase, which will eventually help to provide a bit of a boost for retailers.
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