Recent rate cuts and proposed Federal handouts are expected to drive consumers back to the checkout at a pace not seen since the onset of the global financial crisis.
Deloitte Access Economics has forecast that retail sales will grow by 3 percent next financial year, up from an expected 2 percent this year.
Deloitte partner David Rumbens said both official interest rate cuts and a series of cash payments in May’s budget, including the Schoolkids Bonus, will help retailers after 2010-11 brought the slowest pace of sales growth in two decades.
“It’s in an environment where wages growth is still pretty solid and employment growth, even though clearly very patchy, has still be rising through 2012,” he said.
“So the underlying income drivers are reasonable and so the outlook for retail in 2012 is probably better than it’s been for three years.”
Prior to the May rate cut, RateCity estimated that over $50 million per month of additional retail spending could be freed up if the Reserve Bank (RBA) cut the official cash rate by just 25 basis points.
Lenders later passed on a 32 basis point reduction to variable rate customers in May and a further 20 basis points in June (at the time of writing), of a total of 75 basis points handed down from the RBA.
At the time, RateCity chief executive, Damian Smith, said: “Consumer confidence is dismal across Australia – we’re seeing this impact the home loan market where the number of home buyers is at a five-year low, credit card growth has slowed and retailers are suffering.”
“Two trends are absolutely clear. First, many existing mortgage holders are paying down debt faster. The RBA estimates that 50 percent of mortgage holders are paying more than the minimum required each month, and collectively, Australia’s mortgage holders are paying the minimum each month.”
Second, instead of spending, Australians are saving their money at some of the highest levels on record. There are around 2.5 million households with variable rate mortgages in Australia.
Lowering rates would give the 94.4 percent of these households who are either ahead of their repayments or paying the minimum some options, Smith said.
“If, for example, half of those households took a 25 basis point rate cut and spent that money in the broader economy – in the retail sector, for instance – we’d see an increase of over $55 million in retail spending,” he said.
The only way retailers will benefit from a rate cut if they put pressure on the major banks to follow the RBA’s movements. That’s because the big four banks – ANZ, Commonwealth Bank, nab and Westpac – which collectively hold more than 80 percent of the mortgage business in Australia, have ceased following the RBA’s rate movements.
“We believe this is the biggest factor impacting consumer confidence. Australians now face an environment where they can’t predict which way their home loan rates will go, regardless of what the RBA does,” he said.
“Retailers are pressuring the RBA, but they also need to place greater pressure on major banks directly to pass on any rate cut in full.”