Fed: Retail spending to improve as long as politicians restained

AAP General News (Australia)
12-13-2006
Fed: Retail spending to improve as long as politicians restained

EMBARGOED 0001 AEDT WEDNESDAY DEC 13



CANBERRA, Dec 13 AAP - Both sides of federal politics will have to show restraint in
their spending promises in the run-up to next year's election to prevent consumers bearing
the brunt of even higher interest rates, private forecaster Access Economics said in a
report on retailing today.

Access expects the fortunes of retail spending can improve from now to mid-2008 if
interest rates rise no further and potentially fall from late 2007.

But if the coalition and Labor succumb to a bidding war, another interest rate rise
would be likely, hurting retail spending, especially along the eastern seaboard, it said.

"Nor would the west escape, as a further rate rise might be enough to see Perth's housing
price gains finally shudder to a halt."

Stable to lower interest rates will boost consumer sentiment and take pressure off
house prices, and provide a lift for housing construction.

Access also expects petrol prices will remain around current lower levels for a year or so.

The forecaster expects real retail turnover will grow by 3.0 per cent in 2006/07, compared
with 2.4 per cent in 2005/06, peaking with the next housing upswing in 2007/08 with growth
of 4.1 per cent.

It then expects growth to moderate again to 3.1 per cent in 2008/09 and 2.1 per cent in 2009/10.

However, Access sees some negatives for retailing outlook, with the growth in the jobs
market easing, the Australian dollar reversing its recent buoyant trend, sharemarkets
stabilising and the drought hurting regional spending.

There has been a tug-of-war between retail positives - tax cuts, strong job gains,
west coast housing prices, share prices and petrol prices - and negatives - interest rates
and Sydney house prices.

"Recent months saw the negatives dominate, with retail sales growth losing some of
the momentum which had built up until early 2006," Access said.

"Interest rates are clearly hurting, amid fears that the Reserve Bank hasn't finished
yet, and that will hurt housing prices."

Yet despite these negatives, Access sees the resumption of the retail recovery arriving
soon, driven by rising real wages and an expected turn in the interest rates cycle.

The Northern Territory and Western Australia are expected to stay on top of the states
league ladder, boosted by the commodities boom, which is lifting population, house prices
and retail spending.

"Queensland is getting its share of the boom too, but its relatively larger and more
diverse economy dilutes the impact of the resource boom," Access said.

The Australian Capital Territory is benefiting from jobs growth and a massive office
building boom, as well as a jump in the supply of retail space.

However, retail growth in Tasmania is showing some signs of easing as jobs growth dries
up, while NSW, Victoria and South Australia are expected to remain in the slow lane.

Access said while the retail difficulties of these last three states were diverse,
in general their house prices went too high and were now struggling amid rate rises.

They are also Australia's manufacturing heartland and are suffering from a strong Australian
dollar and rising interest rates. Additionally, they have the oldest populations in Australia
and their baby boomers are retiring in increasing numbers.

AAP cb/sb/jm/de

KEYWORD: RETAIL (EMBARGOED)

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