End of early super stimulus a worry for retailers: Citi

Another $50bn in stimulus will be needed to prop up the retail sector as it faces a tough December quarter, says new analysis.

Shoppers in Sydney’s Pitt Street Mall. Consumption has been supported by government stimulus measures, but these are set to end. Picture: David Swift

The federal government will need to pump at least $50bn into the economy in the December quarter to support retail conditions and market forecasts for company earnings, according to new analysis.

It comes ahead of the feared “fiscal cliff” when JobKeeper and other economic supports end, and as dwindling releases of superannuation funds pose another danger for the retail sector.

Citi analyst Craig Woolford says in a new report on the nation’s $320bn retail sector that retail sales conditions have been strong through the coronavirus pandemic, but are likely to slow from here, which makes retail share prices vulnerable.

And this slide could accelerate if government stimulus is pulled back, with JobKeeper set to end in September, while an end to early withdrawals from super funds will turn off a flow that has benefited retail sales.

“The fade in sales growth may be quicker if government stimulus is wound back and the super withdrawal declines more rapidly,’’ Mr Woolford said.

Citi estimates that another $50bn will need to be poured into consumers’ bank accounts to support retail conditions, share prices and earnings forecasts.

“The economic update provided by the federal government on July 23 will be important and we see downside risk to consensus earnings if total stimulus is less than $50bn for the December quarter.”

The end of a program that has allowed the early withdrawal of up to $20,000 from super accounts was a bigger worry.

Under the scheme, not due to close until September, Australians were told they could take out super before they retired in two tranches: $10,000 last financial year and another $10,000 this financial year.

Recent APRA data showed around $18.1bn was paid out in superannuation withdrawals from late April to June 28, and paid to 2.4 million Australians, or 20 per cent of all employees. The super withdrawal was the largest element of cash flow movements in the quarter.

Later figures earlier this week showed $1bn in super payouts were made in the first week of the new financial year, taking total payouts to $19.1bn since the scheme opened in April.

Mr Woolford said a premature end to that early release scheme would likely to cut household cash flow by up to 6 per cent.

“Super withdrawal a bigger concern — Australian households have seen an increase in their cash flow in the June quarter thanks to around $12bn in government stimulus and $18bn in superannuation withdrawal.

“This helped retail spending in supermarkets and household goods rise at elevated levels. We expect government stimulus to households of (around) $20bn to be provided in the December quarter as well as JobKeeper (or a renamed program) at another (roughly) $20bn.

“We worry more about the super withdrawal ceasing, which lowers household cash flow by 3 per cent to 6 per cent.’’

If stimulus falters, the retailers with the most earnings downside were Wesfarmers, Harvey Norman and Myer, Mr Woolford said.

The federal government is due to provide an update on its economic and fiscal outlook and review of JobKeeper next week.

“The outcome of this review will be impactful on markets and help clarify the drop in stimulus for the December 2020 quarter,” the Citi report said.

“While there is concern about a drop in government stimulus, we think stimulus will remain fairly significant. Excluding JobKeeper, the stimulus is close to $30bn a quarter for June and September and we expect a similar level for the December quarter at $29bn.”

Mr Woolford said the outlook for cash flow in the September quarter and December quarter was weaker than the June 2020 quarter, based on his estimates.

“We think the December quarter is a bigger challenge given it is unlikely to include any superannuation withdrawal.”

Mr Woolford said retail spending has also done well because money was freed up by an almost halving in non-retail discretionary spend (the fall in tourism, auto and entertainment are key factors).

“We expect these areas of spend to gradually recover, impacting retail sales growth over the next year.”