WA slow on retail sales growth

09/09/2009 - 06:49

Bookmark

Save articles for future reference.

Retailers can expect a tough 18 months ahead as the federal government's policy stimulus fades and growth in household income weakens, a leading forecaster says.

Retailers can expect a tough 18 months ahead as the federal government's policy stimulus fades and growth in household income weakens, a leading forecaster says.

Still, independent researcher Access Economics says the performance of retail sales through the worst of the global financial crisis has been "nothing short of remarkable" although Western Australia was the key exception, showing only 0.3 per cent real retail sales growth due to an overhang of weak house prices.

It says in its latest "Retail Forecasts" released on Wednesday that when most economic indicators were pointing south, retail sales climbed 6.5 per cent between November 2008 and May 2009, supported by the weight of the government's "cash splash".

"Enough money was handed out and a good share of the windfall - at least half - has been spent," Access Economics director David Rumbens said releasing the report.

But while those windfalls added a temporary five per cent to the income of the average family, they were already drying up, as revealed in a June retail sales drop of 1.4 per cent.

"There is every chance the level of retail spending will step down further in the short term as spending stops being underpinned by policy and returns to being driven by underlying income growth, which remains relatively weak," Mr Rumbens said.

"Employment may not be falling much but it is not rising either and the average number of hours worked by employees is falling which will cut into underlying incomes."

At the same time, the Reserve Bank of Australia has signalled that the next move in official interest rates is likely to be up, and it may occur before the unemployment rate peaks.

The next federal budget may also include some decisions which will allow budget balance to be restored in a reasonable period.

"That means belt tightening from the Feds which will flow through to wider incomes," he said.

However, there are positives for households from a recovering share market, rising house prices and broader consumer confidence.

Even so, Access is forecasting real - or inflation-adjusted - retail sales to grow by just one per cent in 2009/10 and by a more modest 0.8 per cent in 2010/11, before stronger growth of 3.7 per cent finally returns in 2011/12.

"In large part the magnificent retail performance of recent months has been borrowed from the future," Mr Rumbens said.

He said there had been "good results" across most states but Western Australia was the key exception, showing only 0.3 per cent real retail sales growth due to an overhang of weak house prices.

"However, the prospect of Gorgon and other resource developments returning sooner rather than later will provide a boost to the West," he said.

The stronger the global economy and the return to commodity price strength, the more likely that retail, in what he describes as the "sun belt" - WA, Queensland and the Northern Territory - will start to outperform again going forward.

"For the next year, however, we expect retail in all states to be fairly subdued as the withdrawal of policy stimulus has an effect across the board."

The Australian Bureau of Statistics releases its retail trade report for July later on Wednesday at 11.30am AEST.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options