Petrol, Rates Double Whammy Could Hit Retailers

The Age

Thursday June 19, 2008

Tim Colebatch, Economics Editor, Canberra

RETAILERS are facing a couple of years of lukewarm sales, but are unlikely to suffer a freeze, with buoyant employment, wages and tax cuts set to drive further growth in sales in 2008-09, Access Economics predicts.

In its latest retail forecasts, Access predicts that sales volumes will grow by 2.1% over the year ahead, well down from 4.5% in 2007-08, but better than others are tipping.

It warns that retailers could be more vulnerable if sales depend on financing deals, or if they are in areas with above-average mortgage levels and petrol use - such as outer suburbs.

Its report comes as the Bureau of Statistics reported another record month for imports in May. The nation's import bill jumped a hefty 7% after seasonal adjustment, mostly due to a 17% rise in Australia's fuel bill.

The $3.15 billion cheque for oil imports was up almost 50% from the same month last year, and was almost 10 times the amount Australia paid to import oil in May 1998. The record $18.2 billion swag of imports ensured that Australia ran yet another trade deficit in May, despite the huge rise in mineral export prices.

In the first five months of this year, imports have swollen from $74 billion to $86 billion, with oil ($13.6 billion) accounting for close to half that increase.

Access warns retailers that households exposed to rising mortgage rates and particularly large petrol bills will be especially cautious with their spending in the year ahead.

"There are many households that straddle both groups - a large mortgage relative to income and a big weekly petrol bill because they live in the middle to outer suburbs of major cities," it says. "These households are unlikely to hold many shares in BHP or Rio."

Despite this, Access predicts that the next two years are likely have weak growth in retail sales rather than cuts overall.

"There remains some broad support for incomes, which will keep retail spending ticking over," it says.

"Given that unemployment remains low, participation very high and migration is also bumping up the number of workers, we don't see retail turnover turning on a dime and heading into negative territory.

"While the risks around a more serious slowdown are mounting, particularly as interest rates move higher, the central case is for a more orderly slowdown."

A Sensis survey released yesterday found that 57% of consumers remain confident about their financial future, although 22% say they are worried.

Goldman Sachs-JBWere estimated this month that Australia had a one-in-three chance of going into recession.

© 2008 The Age

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