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How are Australian Businesses Reacting to Current Consumer Spending Trends?

February 23, 2017 | Guest Blogger

If there was one economy that has appeared to be recession-proof during the last two decades, it is Australia. After all, this nation has remained impervious to a number of global economic contractions during this time, most notably in 2008 when the rest of the world crumbled under the weight of the so-called, Great Recession. 

After more than 20 years of prosperity and 100 months of consecutive economic growth, however, Australia may be heading for slightly choppier waters in the year ahead. After all, September of last year saw GDP fall by 0.5%, while the nation’s base interest rate remained at a record low of just 1.5%. While this was only a marginal decline (and one that followed growth of 0.6% during the second quarter), it represented only the fourth quarterly contraction since the recession of 1991 and served as a portent for what lies ahead in 2017. 

Consumer spending figures and the rise of negative sentiment 

Of course, it usually takes a while for the consequences of an economic contraction to filter down to businesses and consumers, but there are some statistics which suggest that households may soon be feeling the pinch. Retail sales endured an unexpectedly weak November, for example, with figures revealing a sequential increase of just 0.2% (as opposed to 0.5% in October). While retail sales grew by 3.3% on an annual basis, this was far lower than the initial forecasts made earlier during 2016. 

This is a sign that consumers are beginning to react to the economic climate, particular as lenders begin to increase mortgage rates and the cost of borrowing. Savings account rates are also being slashed nationwide, as companies react to the negative economic sentiment by looking to optimise revenues in the short-term. The value of the Australian dollar is also likely to decline in the first quarter of 2017, which could have a negative impact on the cost of imported goods and services. 

How are consumers behaving in this climate, and how can businesses capitalise? 

While these statistics and economic portents may not initially bode well, there are some areas of optimism to be drawn from consumer behaviour in the current market.

Firstly, the initial decline in retail sales is relatively small, while it has yet to be seen whether it is sustained into 2017. With a decidedly more robust outlook, consumers may continue to spend at a similar or marginally lower rate in the short-term, allowing businesses to maintain their pricing while they plan for a potential decline in demand further down the line. 

Additionally, there are also some regions in Australia that managed to record impressive retail figures in November. Victoria and New South Wales recorded impressive growth rates of 0.4% and 0.5% respectively, for example, with yearly statistics peaking at 3.5% and 4.3%.

These growth patterns also offer a unique insight into how consumers are spending their money, with New South Wales reporting increased sales of hardware, garden supplies and building materials. Firms in this sector can instantly take heart from this, and some may look to drive sales or increase prices incrementally in order to capitalise on inflated demand while it remains.