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Spending plunge may dent economic growth

October 11, 2017

economic growth

The sharpest fall in retail spending in more than four years has cast doubt on the Reserve Bank’s economic growth¬†forecasts and adds weight to expectations for a long run of unchanged interest rates.

Retail turnover plunged 0.6 per cent to $25.9 billion in August, missing market expectations of a rise from July of 0.3 per cent.

The drop in spending in August follows a decline of 0.2 per cent in July, the first back-to-back monthly decline in spending in six years.

Consumers tightened their belts due to higher energy bills, weak wages growth, rising household debt and cooling house prices, economists said.

Commonwealth Bank’s Gareth Aird said interest payments are taking up a larger proportion of household income, acting as “a handbrake on consumer spending and the retail sector in general”.

The expected arrival of online giant Amazon, and the growth of online retail in general, is also putting pressure on retailers, he said.

JP Morgan economist Ben Jarman said further weakness in household consumption would put at risk the RBA’s forecasts for a return to economic growth of three per cent, from the current annual rate of 1.8 per cent.

“Today’s data underscore the risks to the RBA’s central scenario and the likelihood that rate cuts are more likely than hikes in the foreseeable future,” he said.

RBC Capital Markets economist Su-Lin Ong said it is likely that higher power bills will have also impacted retail spending in September, which could detract from the next reading of economic growth, to be released in December.

“As the key driver of domestic demand, the risk remains that the RBA’s GDP forecasts remain overly optimistic and reliant upon exports and public spending,” she said.

Spending at cafes, restaurants and on takeaway took the sharpest drop in August, down 1.3 per cent, while sales of household goods fell one per cent and grocery sales declined 0.5 per cent.

Departments store sales rose 0.7 per cent, after three straight months of falls.

 

Originally published by The West Australian

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