Consumer spending holds up despite Omicron but business confidence sliding

Economic analysts warn the government response to the Omicron variant is key to business confidence, while consumer spending appears to be holding up.

Boxing Day crowds were reportedly down on prior years as the Omicron outbreak kept some store shoppers at bay. Picture: NCA NewsWire/ David Crosling

Businesses are wary of the latest outbreaks of the Covid-19 Omicron variant, but consumer spending appears to be holding up as shoppers shift spending patterns in the face of rising cases.

The blooming of cases across Australia, as borders reopen and the highly transmissible variant of Covid-19 makes its presence felt, has caused alarm in some corners.

Industry analysts say although many have scaled back social activities in the face of the new variant of Covid-19, shoppers are putting spending dollars to use elsewhere.

The peak body for local operators in the Harbour City, Business Sydney, said a number of its members were reporting cancellations of events and parties, while Boxing Day trading was “quieter than normal”.

Business Sydney executive director Paul Nicolaou said many businesses had chosen to shut down, either due to staffing constraints or lack of foot traffic.

“People are leaving the city to go to regional or country parts of NSW, people just aren’t going to be here for Christmas-New Years,” he said.

“It‘s a period of time when most businesses make money and catch up from the lockdowns, but people have taken the view that being in the city is not the safest place to be so they’ve taken the view to get out into regional parts. Regional businesses will do alright.”

Mr Nicolaou cautioned although there had been “a reactivation” of the CBD the Omicron outbreak was causing employers to rethink return to work plans.

National Australia Bank chief economist Alan Oster said it was too early to tell what kind of hit the Omicron outbreak would have on business confidence.

Mr Oster said the holiday period, and subsequent lack of economic surveying, was masking how businesses were thinking about this latest outbreak.

“It’s hard to tell because the last time we took a reading of confidence was for the November month, that was taken late November first week of December,” he said.

“I suspect business confidence is going to be hurt by the uncertainty. I would expect it to have a negative impact on business confidence but not a big impact on business actual activity.”

Spending data from payments provider Tyro shows payments in the lead up to Christmas through to December 17 were up 38 per cent compared to the same time last year.

This came after Tyro’s data showed spending in its December 2020 data was 19 per cent higher than it was in 2019.

AMP Capital chief economist Shane Oliver said the Omicron impact was likely to be “a milder version of what we saw with Delta”.

“Providing we don‘t have a full lockdown and it’s just kept to distancing restrictions and masks and so on,” he said.

Dr Oliver said even if governments didn’t impose restrictions, many were already voting with their feet and changing plans.

“People are self regulating, people are starting to avoid crowds, there’s no doubt we’re going to see a hit to growth,” he said.

However, Dr Oliver said the economic hit would be much bigger if governments resort to lockdowns.

As it becomes clear if Omicron is a path out of the pandemic and turns it into something that’s endemic then it could turn out to be a good thing,” he said.

“The main risk is if Omicron gets out of control, hospitals get overwhelmed and we get a full on lockdown.”

AI Group chief executive Innes Willox said although business confidence had been on a recovery in recent months, the risk was how governments responded to the Omicron outbreak.
“The biggest danger to improving business conditions is not Omicron but the response to it especially by states who continue to act in muddle-headed, self-centred ways by imposing overly-onerous and ever-changing conditions on business, their employees and customers,” he said.

“Our states need to urgently get together with the Commonwealth and make and stick to agreements on border openings, workable testing requirements, the increased use of rapid testing, isolation and distancing rules.”

Originally published as Consumer spending holds up despite Omicron but business confidence sliding