“In addition,we expect falling house prices to weigh on consumer spending.”
One senior economist said there were signs of a “freedom Christmas” this year and early reports from retailers suggest savvy shoppers flocked to the Black Friday and Cyber Monday sales with that spending spilling over into the early parts of December.
Australia’s retail sector has cheered the return to in-store shopping over the sales period,with some of the nation’s biggest operators reporting strong spending as consumers approach a restriction-free Christmas.
Retail billionaire Solomon Lew told shareholders at his Premier Investments annual general meeting on Friday that momentum had been building both in-store and online with strong foot traffic expected through the festive season.
“We’ve got it all ahead of us now – Christmas sales,Boxing Day,back to school – we’ve got a lot of trading to do,” Lew said.
The spending of this Christmas,however,is expected to run into the reality of much higher mortgage rates,falling real wages and a global economic slowdown caused by central banks using interest rates to bring inflation under control.
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The Reserve Bank expects the share of household income spent on interest payments to reach record or near-record highs after falling to all-time lows when it had the cash rate at 0.1 per cent.
The September quarter national accounts,to be released on Wednesday,are tipped to show annual economic growth spiking towards 6 per cent. But this is predicted to slow sharply over the next year,the Reserve Bank forecasting growth to reach 1.4 per cent by the end of 2023.
Globally,the IMF and OECD are expecting many developed nations to fall into recession next year.
Deloitte Access Economics is among those expecting consumer spending to slow sharply in the coming year.
“For now,we’re expecting the holiday season and end-of-year events to throw the retail sector a lifeline,” Deloitte Access partner David Rumbens said.
“Looking ahead,retailers are likely to face a difficult six months as they ring in the new year. With cost-of-living pressures and a mortgage rate squeeze clouding the horizon,retailers are growing pessimistic about the state of the consumer in 2023,” he said.
EY chief economist Cherelle Murphy is sceptical of the freedom Christmas,saying consumers were already facing strong headwinds.
“The conditions for slower consumer spending are in place,especially given real wages continue to fall,interest rates are still rising,house prices are moving south in nearly all capital cities and substantially higher electricity and gas prices are expected to eat into discretionary income,” she said.
“The recent devastating floods are another challenge,likely to both add to inflation and slow growth in the short-term,given already frustrated supply chains.”
The Commonwealth Bank’s head of Australian economics,Gareth Aird,said there was a large number of people with fixed-rate home loans who would experience substantial increases in repayments through 2023.
“The RBA is still flying blind to a degree given the last few rate hikes have not yet hit home borrowers from a cash flow perspective,” he said.
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