2Downunder digestAustralian Economics23 April 2013
Retail supported by low rates, rising wealth and a steady AUD
Retail sales rose strongly in January and February, in line with a pick-up in consumer sentiment since the beginning of the year (Charts 1 and 2). The RBA reported in its recent board minutes that its own liaisonsuggests the improvement in retail conditions continued into March. The pick-up in spending is beingsupported by low interest rates, which have reduced households’ debt servicing burden, and risinghousehold wealth (Charts 3 and 4). After falling in the early part of last year, household wealth has pickedup, due to rising housing and equity prices.In addition to the effect of low rates, we also expect that the AUD is no longer putting as much downward pressure on local retail sales as it had been in 2010 and 2011. Back then, the strong AUD appreciationhad encouraged very strong growth in overseas departures of Australian residents, as more people choseto go on international holidays (Chart 5). This meant more dollars leaking offshore, as there was lessdomestic travel and more spending abroad. But growth in overseas departures has slowed. While it is stilla drag on local spending, the drag is easing. In this way, the AUD effect on growth is starting to wear off.
1. Retail sales have picked up solidly in early 2013 2. Consumer sentiment has lifted in recent months
Source: ABS Source: Roy Morgan; Datastream
3. Cuts to rates have reduced interest payment burden 4. Household wealth is rising after falling in 2011/12
Source: ABS Source: RBA; HSBC estimates