AUSTRALIA'S run of retail store closures is set to continue, according to Finder.
In the latest Finder RBA Cash Rate Survey, 39 experts and economists weighed in on future cash rate moves and economic indicators, and the state of the retail sector.
In the last few months, retailers Big W, Bose, Curious Planet, Harris Scarfe, Bardot, EB Games, Target and Jeanswest have closed Australian stores.
When asked if they expect to see further store closures in 2020, nearly 4 in 5 (79%, 22/28) said yes.
Graham Cooke, insights manager at Finder, said the outlook is grim.
“While FMCG retailers such as Woolies and Coles will generally continue to operate successfully, clothing and other retailers must adapt or perish.
“In an environment where people are spending less, and ordering more online – if you don’t have a seat at the table, you might be on the menu,” mR Cooke said.
This potential continued run of closures comes as the Reserve Bank of Australia (RBA) today announced a hold of the cash rate for the third consecutive time, an outcome which was accurately predicted by 87 percent experts from the Finder RBA Cash Rate Survey™.
Expectations of a dropping cash rate remain strong, with 95 percent of panellists forecasting the next move to be in a downward direction.
“Between weak consumer spending and credit card debt dropping, as well as the increasing uncertainty around global trade and international travel, there are plenty of reasons to try to give the economy another jolt.
“Not to mention the devastation of the bushfires,” Mr Cooke said.
Carbon tax solution to climate change
A recently released report1 from BIS concerning economic policy and the impact of climate change said, in its foreword, that the first-best solution to the climate crisis was the introduction of a carbon tax.
The majority of experts (62%, 16) said a carbon tax should be introduced, although two members of that group also said they didn’t think it was necessarily practical to do so.
“Most people seem to think that economists would never agree to the introduction of a carbon tax, but these results show that this simply isn’t true. More than half of experts believe that either a carbon tax or a price on carbon is necessary to solve the climate crisis,” Mr Cooke said.
Mark Brimble of Griffith University said there is no single solution.
“A systemic economy-wide set of responses and policy settings is required, including [a carbon tax],” Mr Brimble said.
Shane Oliver, economist at AMP Capital said a price needs to be put on carbon emissions, but that this is not necessarily a tax.
David Robertson of Bendigo and Adelaide Bank said a global emissions scheme is required, in which Australia could participate.
Nicholas Frappell of ABC Bullion said a carbon tax may be the first-best solution but there are other things to consider.
“The issue here is whether the tax correcting the negative externalities should fall on Australian producers or to what extent, and does/do government(s) know the correct cost of such externalities?” Mr Frappell said.
Economic Sentiment Tracker tips lower
Results from Finder’s Economic Sentiment Tracker, which gauges five key indicators – housing affordability, employment, wage growth, cost of living and household debt – continued to drop to a new all-time low.
Positive economic sentiment for household debt, the cost of living and housing affordability have fallen to new lows of 10%, 3% and 6% respectively, while the outlook for employment and wage growth improved marginally to 18% and 6% respectively - but still sit well below the 35% and 33% seen for each, respectively, in the last 12 months.
The release of the December employment numbers last week showed a fall in the unemployment rate on the back of another solid month of net job creation.
“Average sentiment across all economic areas is down to an all-time low of 9 percent — indicating the lowest positivity I have seen since we started measuring sentiment 22 months ago,” Mr Cooke said.
“While the majority of experts are still saying a recession is unlikely, the economic uncertainty certainly seems to be spreading.
“In this climate, every dollar counts. Find the best deal for you, from the thousands you can save a year on your home loan to the hundreds you could save a year on your mobile plan.”
1 The green swan - Central banking and financial stability in the age of climate change" Bank for International Settlements, Jan 2020, https://www.bis.org/publ/othp31.pdf
Here’s what Finder's experts had to say:
Nicholas Frappell, ABC Bullion (Hold): "The case for another rate cut in February is fairly evenly balanced. The improvement in China-US trade negotiations should help the external sector over 2020. It's a tougher call relative to last year."
Shane Oliver, AMP Capital (Hold): "With the economy a long way from the RBA’s full employment and inflation objectives, the bushfires likely to knock growth in the short term and the China coronavirus posing a new threat to global growth and tourist arrivals the RBA should be cutting rates at its February meeting. But against this it may decide to wait a bit longer given the decline in headline unemployment reported for December. Given the latter, we lean towards the RBA cutting in March. But it's a close call and a February cut would not be surprising."
Alison Booth, ANU (Hold): "The available information suggests the RBA will either hold (most likely) or drop interest rates."
John Hewson, ANU (Cut): "Running out of capacity so being cautious."
Julie Toth, Australian Industry Group (Hold): "Stagnant activity, investment, employment growth and unemployment rate."
Malcolm Wood, Baillieu (Hold): "Sluggish growth and inflation below the target."
David Robertson, Bendigo and Adelaide Bank (Hold): "Probably too soon for another RBA cut in February, after encouraging jobs data last week, but a few factors still suggesting another cut is looming."
Sarah Hunter, BIS Oxford Economics (Hold): "The recent labour market data has been more positive than we anticipated, so we've pushed back our call for one final rate cut to Q2 2020. But the forward indicators for jobs growth have continued to weaken (and the impact of the bushfires is a further downside risk), which means we still expect the RBA to cut one more time in this loosening cycle."
Ben Udy, Capital Economics (Hold): "While recent positive data have given the RBA a respite, we think sustained weakness in economic activity, a deterioration in the labour market and weak inflation will prompt the Bank to ease rates further."
Craig Emerson, Craig Emerson Economics (Cut): "Weak wages growth and the adverse economic consequences of the bushfires."
Trent Wiltshire, Domain Group (Cut): "The RBA needs to cut rates to push unemployment down to around 4.5 percent and to get inflation to rise. However, the RBA will be concerned about rapidly rebounding property prices. A reasonably strong labour force report for December 2019 shouldn't be enough for the RBA to pause the rate cutting cycle."
John Rolfe, Elders Home Loans (Hold): "I believe the RBA will hold off as long as possible to reduce further but will be forced to do so as I do not believe employment and wage growth will be strong enough to drive up retail spending."
Angela Jackson, Equity Economics (Hold): "While there were signs of improvements in economic conditions in late 2019, the impact of the fires and now the threat of a pandemic on economic confidence is likely to warrant a further cut to support economic growth. While the Board may move in February, I think on balance a March rate cut is more likely."
Mark Brimble, Griffith University (Hold): "Competing forces and a desire to have some room to move will likely drive a hold position for most of the year. Bias to a decrease in rates if required."
Tim Nelson, Griffith University (Hold): "More time will be required for the RBA to assess whether current settings are on track for full employment."
Tony Makin, Griffith University (Hold): "Whether there's another cut will depend on how poorly the economy performs in the 2020 March quarter, taking GDP growth, private investment, unemployment, housing prices, and the exchange rate into account."
Peter Boehm, KVB Kunlun (Hold): "I expect (hope) the RBA holds rates. The reasons for this include: 1. Dropping rates further is unlikely to help increase business investment and reduce unemployment - if rate reductions were going to have a material impact in these areas, they would have happened by now given the RBA's rate dropping strategy during 2019. 2. House prices, particularly in Melbourne and Sydney are returning to their 2017 highs and are currently showing double digit growth in most areas. This is not good for the market, the economy and borrowers — who are being forced to take on even bigger mortgages. We are creating a major mortgage debt problem which will only worsen once rates inevitably start to rise. 3. Low interest rates are not good for the banks. Their interest margin typically narrows in such environments which places pressure on profits and capital adequacy — not good companions for the financial impacts of the Royal Commission 4. Pensioners and retirees who rely on interest income will see their finances and standard of living eroded further if rates are reduced again."
Leanne Pilkington, Laing+Simmons (Hold): "The sheer scope of the bushfire crisis has changed the outlook economically. While another cut early this year will provide further breathing space for mortgage holders, the potential impacts in terms of encouraging business investment remain unclear. Rates are already at historical lows and the three cuts of 2019 have not yet delivered the stimulus the RBA had hoped for."
Nicholas Gruen, Lateral Economics (Hold): "I expect the bank will hold. With latest employment data it is unlikely to cut. But I expect growth to continue sluggishly so there may be a cut or two down the track."
Mathew Tiller, LJ Hooker (Hold): "Positive employment numbers, strong property price growth and a record beating sharemarket should provide enough optimism to see the RBA hold the cash rate steady, at its first meeting of 2020. That said, soft retail turnover and household spending, bushfires, drought and global geo-political events all pose downside risks to the economic outlook over the coming year. Real estate markets are set for a positive start to the year with agents already reporting strong levels of enquiry and attendance at open homes. However, the number of properties on the market for sale remains very tight and this demand/supply imbalance is expected to drive property prices higher over the first half of 2020."
Geoffrey Harold Kingston, Macquarie University (Hold): "The fall in seasonally-adjusted full-time jobs last month may herald upcoming weakness in the labour market, notwithstanding the drop in the unemployment rate."
Jeffrey Sheen, Macquarie University (Hold): "Given the likely modest fiscal response to the negative impacts of the disastrous bush fires and the Wuhan coronavirus, I expect the RBA to cut the rate in March to 0.5%."
Stephen Koukoulas, Market Economics (Cut): "Low inflation, currently weak economic growth."
John Caelli, ME Bank (Hold): "It’s likely the RBA will hold the cash rate in February, as employment data for December was relatively strong. The outlook for employment is a key element of any decision, so it’s probable the RBA will wait until at least April to gather more employment data before making another assessment to cut rates."
Michael Yardney, Metropole Property Strategists (Hold): "The strong December employment figures will allow the Reserve Bank will to delay its next cut in the cash rate while it evaluates our economy's performance and the effects of the tragic bushfires"
Mark Crosby, Monash University (Hold): "RBA still showing willingness to stick to more futile cuts in the cash rate, and expect one or two more cuts before they give up."
Susan Mitchell, Mortgage Choice (Hold): "Better than expected labour market data should keep the Reserve Bank Board from cutting the cash rate in its first meeting of the year. December 2019 Labour Force data from the Australian Bureau of Statistics revealed that the unemployment rate fell to 5.1% (seasonally adjusted) from November. That being said, we would need to see consistent progress towards an unemployment rate of 4.5% in order to see an improvement in wages and inflation."
Dr Andrew Wilson, My Housing Market (Hold): "Improved labour market trend if sustained may foreshadow the end of the current rate easing cycle."
Jonathan Chancellor, Property Observer (Hold): "There are some tricky economic challenges confronting the central bank who will likely need to cut again sooner than later."
Rich Harvey, Propertybuyer.com.au (Hold): "The effectiveness of past rate cuts is taking longer than expected to filter through the economy. Wages growth still sluggish and businesses still debating investment decisions. RBA still awaiting further indications of softening before pulling trigger for next rate cut."
Matthew Peter, QIC (Hold): "The RBA will remain on hold in February, despite the potential impact of the bush fires. Better prospects for the global economy, the potential for a stabilisation in Australian consumer spending and a robust labour market provide the RBA with breathing space on monetary policy. With only two rate cuts separating the cash rate from the effective lower bound, the RBA is a reluctant rate cutter at this junction."
Noel Whittaker, QUT (Hold): "So much depends on economic conditions and the impact of the fires."
Nerida Conisbee, REA Group (Hold): "The economy isn't exactly firing but there continues to be at least some good news. Building approvals rose in November, albeit off a low base. Retail trade rose in November, although it may be just a Black Friday bump. Housing prices continue to rise. And most recently, the unemployment rate dropped. All of this points to Phillip Lowe's gentle turning point of the economy. At this stage, it does look like an interest rate cut this year is looking increasingly unlikely and there is no risk that the RBA will have to move to quantitative easing. Conditions can of course change dramatically over the course of 12 months."
Jason Azzopardi, Resimac (Hold): "RBA will assess further data to gauge impact of 2019 cuts. Cut seems inevitable given RBA announced unemployment targets."
Christine Williams, Smarter Property Investing Pty Ltd (Hold): "While unemployment has not moved, construction has started to recover slightly due to loosened regulations, but growth is still being held back by discretionary spending. The RBA will likely increase the cash rate in the second half of the year."
Besa Deda, St.George Economics (Cut): "In the absence of wage pressures, inflation remains well below target. More stimulus is required to return growth to trend."
Mala Raghavan, University of Tasmania (Hold): "The recent bush fire crisis will have a negative effect on the Australian economy. If this is coupled with global trade uncertainty, and gloomy world economic outlook, it will drive down domestic household and business confidence and investments. Given these scenarios, there is a high possibility that the RBA will bring down the cash rate as low as 0.5% around the middle of the year."
Clement Tisdell, UQ-School of Economics (Hold): "No fall at this time. The housing market is strong."
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ends
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