According to a report by Deloitte Access Economics, Australia is going through a "retail recession" as rising interest rates and inflation reduce customers' purchasing power. Once inflation is taken into account, retail turnover fell 0.6% in the March quarter, which is twice as fast as the decline in the last three months of 2022. Retail sales are probably down for the June quarter as well, making it three straight quarters of decrease.
“This retail recession isn’t a surprise,” said David Rumbens, lead author of the Deloitte report. “We’re also expecting consumer caution to extend further than just goods, with consumers expected to also pull back on services, which could result in a broader-based ‘consumer recession’ later this year.”
The Reserve Bank would likely be pleased to see signs that actual retail expenditure is declining. In an effort to reduce the excessive demand in the economy, it has increased official interest rates 12 times in 13 months, most recently earlier this week.
The RBA governor noted on Wednesday that one of the "complicating" factors in evaluating how high interest rates should go is the "very mixed experience across households and firms."
“The data that the banks share with us suggest that spending is most subdued among households with a mortgage, especially those that borrowed large amounts relative to their incomes over recent years, and households that rent,” Philip Lowe said, adding some households had “accumulated large additional savings during the pandemic and have not run these down”.
Household expenditure increased by a meagre 0.2% in nominal terms during the March quarter, the lowest level since Covid lockdowns in eastern Australia during the September quarter of 2021, according to national accounts data released on Wednesday. According to the ABS, consumers used their savings to maintain their expenditures on necessities like energy.
The largest bank in Australia, CBA, said the March quarter statistics showed the economy shrank on a per capita basis, and the June quarter data would likely confirm a further decline.
“A recession now looks a distinct possibility in [the second half of 2023] and we put the chance at 50%,” CBA said. Recessions are usually measured by two consecutive quarters of GDP contraction.
The bank increased its forecast for the amount by which the RBA will increase its cash rate.
“We now expect one further 25 basis-point increase in the cash rate for a peak of 4.35% and see it most likely at the August board meeting,” the economists said. “The risk is a 25bp rate hike earlier in July. And there is also a risk of 25bp rate rises in both July and August, which would take the cash rate to 4.6%.”
According to the Deloitte analysis, Australia's population increase, along with net overseas migration forecasts of 400,000 in the fiscal year ending this month and another 315,000 in 2023–2024, could help the country recover from its retail crisis. An increase in international students would also be beneficial.
According to the report, total real retail turnover is predicted to increase from minus-0.7% in calendar year 2023 to 1.3% in calendar year 2024.
“This return to growth would be spurred by more people and also more open wallets,” the report said. “As inflation continues to track down there is expected to be a point in 2024 where real wage growth becomes positive again.”
(Source:www.theguardian.com)
“This retail recession isn’t a surprise,” said David Rumbens, lead author of the Deloitte report. “We’re also expecting consumer caution to extend further than just goods, with consumers expected to also pull back on services, which could result in a broader-based ‘consumer recession’ later this year.”
The Reserve Bank would likely be pleased to see signs that actual retail expenditure is declining. In an effort to reduce the excessive demand in the economy, it has increased official interest rates 12 times in 13 months, most recently earlier this week.
The RBA governor noted on Wednesday that one of the "complicating" factors in evaluating how high interest rates should go is the "very mixed experience across households and firms."
“The data that the banks share with us suggest that spending is most subdued among households with a mortgage, especially those that borrowed large amounts relative to their incomes over recent years, and households that rent,” Philip Lowe said, adding some households had “accumulated large additional savings during the pandemic and have not run these down”.
Household expenditure increased by a meagre 0.2% in nominal terms during the March quarter, the lowest level since Covid lockdowns in eastern Australia during the September quarter of 2021, according to national accounts data released on Wednesday. According to the ABS, consumers used their savings to maintain their expenditures on necessities like energy.
The largest bank in Australia, CBA, said the March quarter statistics showed the economy shrank on a per capita basis, and the June quarter data would likely confirm a further decline.
“A recession now looks a distinct possibility in [the second half of 2023] and we put the chance at 50%,” CBA said. Recessions are usually measured by two consecutive quarters of GDP contraction.
The bank increased its forecast for the amount by which the RBA will increase its cash rate.
“We now expect one further 25 basis-point increase in the cash rate for a peak of 4.35% and see it most likely at the August board meeting,” the economists said. “The risk is a 25bp rate hike earlier in July. And there is also a risk of 25bp rate rises in both July and August, which would take the cash rate to 4.6%.”
According to the Deloitte analysis, Australia's population increase, along with net overseas migration forecasts of 400,000 in the fiscal year ending this month and another 315,000 in 2023–2024, could help the country recover from its retail crisis. An increase in international students would also be beneficial.
According to the report, total real retail turnover is predicted to increase from minus-0.7% in calendar year 2023 to 1.3% in calendar year 2024.
“This return to growth would be spurred by more people and also more open wallets,” the report said. “As inflation continues to track down there is expected to be a point in 2024 where real wage growth becomes positive again.”
(Source:www.theguardian.com)
