Clouds won't part for retail anytime soon: ANZ

Larry SchlesingerSeptember 22, 2011

RBA assistant governor Philip Lowe’s speech on household saving and spending highlighted tough times ahead for retailers, according to Katie Dean, head of Australian economics at ANZ research.

Dean notes comments by Lowe indicating that two macro trends – “higher household savings and increased spending on services” – are likely to persist. 

“In other words, challenging times for the retail sector will persist,” she says. 

And she expects retailers to struggle even if the RBA cuts interest rates, “given the RBA attributes a good portion of the recent rise in household savings to heightened uncertainty amongst households”. 

“Indeed, as the deputy governor confirms, ‘The increased household saving is … a positive development from a national risk-management perspective. Households are using some of their income growth to build up bigger financial buffers, and this should hold them in good stead in the uncertain world in which we live.’” 

According to Dean, Lowe’s speech also provides some perspectives on how and why Australian household savings and spending patterns are changing. 

“Briefly, the data suggest the rise in household savings reflects three drivers:

  • higher housing prices and debt levels, with household savings rising more sharply for younger households and households that are either renting or have a mortgage;
  • the desire to rebuild wealth after the global financial crisis, with the rise in savings also highest amongst households that had relatively high levels of financial assets before the financial turmoil; and
  • higher uncertainty amongst households, with the rise in savings more.

 “With all three drivers continuing (and perhaps worsening again) currently, there is therefore little reason to expect current household savings patterns to reverse.”

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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