Australia | Sep 17 2008
By Chris Shaw
The Australian economy is slowing sharply and after growing at a rate of 5.7% in 2007, Westpac is forecasting domestic demand growth of just 1.8% in 2008/09, which would be the slowest rate of growth since 2001.
As economist Matthew Hassan notes, the slowdown is being driven by Australian consumers, as evidenced by a fall in monthly retail sales from an increase of 8.3% for the year to December 2007 to a decline of 0.3% over the first half of 2008.
On Hassan’s estimates, real retail spending will stay subdued for some months. His forecasts call for an increase of 1.3% this year and 2.2% in 2009. This weakness is being reflected by the food and fast food retailing segments, as over the first half of this year he calculates quarterly real sales volumes fell by 1.3%. For the full year, food and fast food sales are expected to increase by 0.4%, before improving slightly to a gain of 2.0% in 2009.
As Hassan points out, it has been the resource states of Western Australia and Queensland where the downturn has been strongest. Trend growth rates in these states have gone from double digit to this year posting a decline to 0.9% and 4.4% year-on-year respectively. Hospitality and services segments experienced the most severe slowdowns given their more discretionary nature.
On the plus side, this underperformance is not expected to last long or to get any worse, as Hassan expects the mining boom to continue to deliver above trend income growth in both states.
Across the sectors, Hassan notes the sharpest slowdowns have occurred in cafes and restaurants and “other food” retailing, which includes both liquor and specialty food stores. In contrast, takeaways, pubs and clubs and basic food retailers have performed relatively better, reflecting a switch by consumers from more expensive to cheaper options.
The numbers bear this out, as Hassan notes after rising by 6.6% in the year to June 2007, restaurant and cafe volumes fell by 7.9% in the year to June 2008, while takeaway volumes increased by 1.2% in the year to June after rising by 3.8% the previous year.
Over much of the past year a strong increase in food price inflation has been a factor in the slowdown in basic food retailing, but Hassan suggests these pressures are easing slightly, which is helping bring down food prices a little. But any relief may be short-lived, as with both fuel and basic food prices still being pressured higher, Hassan expects the cost of both basic and prepared food is likely to continue to increase.