Discounting Shoppers Help Fuel Australia’s 4Q Economic Growth

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Australian retail sales saw a slight dip in December, following the boost from Black Friday shopping in November, but discounting helped maintain consumer spending and contributed to economic growth in the fourth quarter.

Data from the Australian Bureau of Statistics (ABS) showed a 0.1% decline in retail sales in December compared to November, when sales had increased by 0.7%. This result was better than the 0.7% drop analysts had expected, with promotions like Cyber Monday falling in December this year, and discounting spread out throughout the month.

"Cyber Monday encouraged more spending on household goods as shoppers took advantage of discounts on larger items," said Robert Ewing, head of business statistics at the ABS.

Retail sales for the fourth quarter increased by 1.0%, reaching A$105.8 billion ($64.93 billion), surpassing the expected 0.8% rise and marking the largest gain since early 2022. Discounting played a significant role in driving the increase, as households spent some of the government tax cuts and subsidies that were provided in the second half of the year.

This consumer spending is expected to contribute about 0.2 percentage points to the country's GDP, offering vital support amid flat economic growth due to high mortgage rates and cost-of-living pressures.

Relief for borrowers may be on the horizon, as markets are heavily betting on the Reserve Bank of Australia (RBA) to implement its first rate cut in four years when it meets on February 18. Futures markets show a 95% chance that the current 4.35% cash rate will be lowered by 25 basis points, with two more rate cuts expected by the end of the year.

The RBA had indicated openness to a rate cut in December, and a surprisingly soft inflation report last week could set the stage for an early reduction. Luci Ellis, chief economist at Westpac, noted that disinflation had progressed faster than the RBA anticipated, providing the central bank with the confidence to begin cutting rates.

"We see the RBA remaining data-dependent from here, but not rushing to take further action," she said. "If inflation continues to decline and the labor market softens, we expect rate cuts in May, August, and November, bringing the terminal rate to 3.35%."

Additionally, concerns about U.S. President Donald Trump's tariffs on China, Mexico, and Canada are adding to the case for easing. As a major exporter of resources to China, Australia's economic growth could be impacted if tariffs hinder demand for its commodities. 

This uncertainty led to a 1.6% drop in the Australian dollar, bringing it down to its lowest level since the 2020 pandemic at $0.6115.

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.