Bushfires contribute to retail sales slump in December

Retail sales weakened sharply in December on the back of a soft Christmas sales period and bushfire disruption.

Retail sales failed to show a hoped-for boost in December.

The country has had its first taste of the economic damage from the catastrophic bushfire season, after fires and associated choking smoke stopped Australians eating out in December and contributed to an unexpectedly steep fall in monthly retail sales.

The sales data backs up comments from Reserve Bank governor Philip Lowe on Wednesday that the fires would likely have a “noticeable” effect across the ­December and March quarters, but that “GDP growth for 2020 as a whole will be largely unaffected”.

Sales dropped 0.5 per cent in December, seasonally adjusted numbers from the Australian ­Bureau of Statistics showed on Thursday, suggesting a jump in sales in November had been due to the Black Friday sales rather than the start of a much-needed upswing in spending. The ­December slump was bigger than the 0.2 per cent fall ­forecast by economists, who had expected some payback after sales surged 1 per cent in November.

Bushfires and smoke, particularly in NSW and Sydney, also dented spending, especially among food retailers, cafes and restaurants, as Australians stayed indoors.

Sales for cafes, restaurants and takeaway food fell 0.9 per cent in December, while food retailing dropped 0.3 per cent. Sales in NSW fell 1.2 per cent — the steepest monthly drop in eight years — and were flat in Victoria.

Australian Retailers Association executive director Russell Zimmerman said annual sales growth of 2.7 per cent was “dis­appointing” but “not unexpected given natural disasters affecting the country over summer”.

The national statistics agency said it expected more turnover impacts from the natural disaster to show up in the January numbers after Melbourne and Canberra were heavily affected by smoke haze in the first weeks of 2020.

A growing number of economists are warning that the cumulative toll from the fires and the evolving coronavirus epidemic could lead to an economic ­contraction through the first three months of the year.

Josh Frydenberg said it was too early to assess the eventual economic impact of the virus, but it would be “significant”.

“We are prepared. We have the fiscal flexibility to respond to economic crises when they occur,” the Treasurer told parliament on Thursday.

Labor Treasury spokesman Jim Chalmers argued that the economy was weak before the ­actual and prospective damage wrought by fires and the epidemic. “Scott Morrison and Josh Frydenberg shouldn’t be using the fires and coronavirus as an excus­e for their longstanding failures on the economy,” he said.

 

There was solid evidence in the ABS data that shoppers had pulled forward Christmas spending to take advantage of the Black Friday sales in November, exacerbating what was the steepest monthly fall in retail sales in over two years.

Australians sharply reined in spending last year under the cumulative weight of weak wage growth, high debt levels, global uncertainty and falling house prices. Consumption growth slumped to 1 per cent over the year to September, the slowest pace in a decade.

Dr Lowe, in a speech on Wednesday­, said the “subdued” spending was the “most important factor” leading to Australia’s surprisingly weak economic ­performance, “as households adjus­ted to slow wages growth and falling house prices”.

Three rate cuts since June, tax relief and a rebounding property market are yet to spur a lift in consumption, with households instead choosing to pay down debt.

Dr Lowe said he expected households’ “balance sheet ­repair” to end this year, and was betting this would drive a more confident consumer and an acceleration in economic growth.

The RBA governor will appear before the House of Representatives economics committee on Friday morning.

Trade data released on Thursday showed the external sector remained the strongest performing sector of the economy, with ABS data revealing a surplus of $5.2bn in December, down from $5.5bn on in the previous month.

The government’s decision to deny travellers from China entry into the country, in order to stop the spread of the virus to Australia, will hit the $16bn in tourism and education exports to our ­biggest trading partner.

As a result, the outlook for ­exports carried “a greater degree of uncertainty than usual”, according to Commonwealth Bank senior economist Gareth Aird.