Recovery unlikely until a rate cut, economist says
Australian businesses are now feeling the impact of reduced consumer spending, even if they are not direct retail traders, according to CreditorWatch.
Anneke Thompson (pictured), chief economist at CreditorWatch, said that their data have shown the average value of business-to-business invoices is now at a record low.
“Spending at cafes and restaurants is below levels seen in August and September, which is highly unusual in Australia, where we typically spend more in this sector of the Christmas and summer holiday period,” Thompson said.
Moreover, she believes that it is unlikely that a decent recovery in turnover and the average value of invoices will be seen until we get closer to a drop in the cash rate, which is not likely to happen before the third quarter of this year.
The Reserve Bank of Australia (RBA) made the decision to maintain the cash rate at 4.25% last month. With the December quarter inflation down from 5.4% to 4.1%, there was indication that the monetary policy measures the RBA has taken were working well to bring down inflation.
“The RBA will now be closely monitoring monthly inflation, as always, as well as labour force data,” Thompson said in CreditorWatch’s latest monthly economic update. “If the unemployment rate rises more than anticipated – and the RBA currently expects the rate to be 4.2% by June 2024, only 0.1% higher than it already is – this will add to the case to ease monetary policy sooner rather than later.”
She also noted an unexpected rise in consumer confidence, attributed to positive inflation news, though overall sentiment remains pessimistic. Business sentiment and conditions, particularly in recreation, personal services, and the finance sector, are aligning more closely, with most sectors experiencing a downturn.
“This data tells us that businesses are expecting weaker conditions over the next six months at least, and have been preparing for this for some time,” Thompson said. “Consumers seem to be watching data trends closely, but maybe reacting a little too quickly to good economic news.
“Regardless, given the low levels of savings and very high housing costs that both renters and mortgage holders are paying, it won’t be until we see real relief in interest rates and rental inflation that discretionary spending will recover.”
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