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(CEP News) - Swift action by Australian officials and the effect of lower fuel prices have done their part to keep retail spending above forecasts in late 2008 - but this may not last, economists say.
A report Wednesday morning (Tuesday night EST) proved seasonally adjusted retail spending has increased in the last four out of five months in Australia, despite doom and gloom headlines about the global financial crisis. Scott Haslem, chief economist with UBS said the reports have been encouraging, and prove the A$10.4 billion fiscal stimulus plan introduced by the government in October paired with sharp rate cuts from the Reserve Bank of Australia have done their part. Lower gas prices played a role in boosting the consumer mood as well, he said. Su-lin Ong, economist with RBC Capital Markets agreed these factors combined with healthy holiday spending anecdotes show spending in the last quarter of 2008 held up well, and that December's result should be upbeat. Economists had been expecting seasonally adjusted retail sales to fall by 0.4% in November, and the report from the Australian Bureau of Statistics proved the opposite - a 0.4% increase. Nevertheless, Ong said recent sharp discounting by retailers will not be sustainable into 2009, and if unemployment rises as expected, consumers could start to "bunker down," she said. Looking to the first half of 2009, Haslem said many factors could weigh on retail spending. The global slowdown is not over, he said, unemployment should rise, business investment will falter and exports will decline. "A slower consumer trend is likely to stay in vogue," he said. Ong said the prospect of a timid consumer means the Reserve Bank of Australia (RBA) still has work to do. After a staggering 300 basis points in cuts in the fourth quarter, Ong said perhaps the pace of adjustment will be slower. She forecasts a 50 basis point cut from 4.25% to 3.75% at the RBA's next meeting in February. The Australian dollar jumped from below 0.7200 to a high of 0.7233 against the U.S. dollar on the report. Economists at Westpac said the positive retail sales report could sustain the currency's strength throughout the day, "particularly on the crosses," they said. Despite the jump, David Forrester, currency economist with Barclays Capital said other factors have more of an influence on the currency's health. Over the coming weeks, the rising commodity prices and risk appetite of early 2009 have to be sustained for the Australian dollar to hold up. These outside factors weigh heavier on the Aussie than domestic data, he said. By Megan Ainscow,
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