OZ Dollar Falls Below $0.60 Westpac Claims ‘Technical Recession’ Consumers Still Spending
The Australian dollar has fallen below $0.60 due to the Coronavirus and the slump in share values in Australia, and while goods currently being sold will not rise, goods coming into the Country after May could rise by as much as 20%.
Currently consumers are still spending with demand for freezers, TV’s, networking gear, monitors and headphones that can be used for conference calls in big demand.
The fear for consumer electronics and appliance retailers is that Australia will be in lockdown by Monday this has already led to a sharp selloff in Australian stocks and a slump in the dollar.
The Australian dollar has dipped to its lowest level in 17 years, tumbling below the US60.10¢ mark it hit during the worst of the global financial crisis.
The Australian currency broke through the milestone level just before 10pm AEDT on Tuesday, hitting US59.60¢, the weakest level since April 2003.
On Wednesday it was trading at US59.94¢, on track to decline for a seventh straight session.
For retailers’ distributors and suppliers in this market the big issue will be consumer discretionary spending which the Federal Government is desperately trying to prop up.
Westpac economists claim the latest Federal Government’s Fiscal Stimulus Package is a bold initiative to bolster the Australian economy’s defences against the damage likely to be wrought by COVID–19.
“It is imaginative and works through boosting investment while providing real incentives to protect jobs” they wrote in a recent briefing paper.
Earlier today Westpac forecast that without any Stimulus Package the economy would experience a technical recession of two consecutive quarters of negative growth (in March and June).
Although, with growth expected to recover strongly in the second half of 2020 the unemployment rate was unlikely to exceed 6%.
Our analysis of the Package suggests that the initiatives are only likely to offset the contraction in the June quarter that we had estimated earlier in the week rather than lift growth into positive territory.
However, the current domestic and global environment has deteriorated more rapidly than Westpac had expected.
The downside risks are now materialising they claim.
Australia’s unemployment rate will hit 7pc by October, according to Westpac chief economist Bill Evans.
Mr Evans has revised his unemployment forecast up from a previous estimate of 5.8pc to 6.0pc after slashing his economic growth forecasts amid mandatory quarantine requirements for international travellers, restrictions on large public gatherings, a brutal sell off in the global equity markets, and reports of limited liquidity in government and corporate debt markets.
“Not surprisingly, as these events have moved quickly, we have made some major changes to our estimates of the impact of COVID-19 in both the March quarter and the June quarter,” Mr Evans says. Growth through 2020 is now estimated at 1.5pc with minus 1pc in the first half and 2.5pc in the second half.
Mr Evans sees larger negative shocks to the labour intensive sectors such as recreation; tourism; education; renovations and additions; and dwelling construction.
The rise in unemployment is expected despite anticipating a significant “discouraged worker effect” lowering the participation rate.
‘Despite the Government’s bold efforts, the June quarter is still likely to show negative growth and Australia will experience a technical recession’ they said.
What will happen if consumers stop spending?
Research shows that when consumers shop, they directly support jobs in companies that produce, transport, and sell final goods and services.
Many jobs in Australia directly or indirectly relate to consumer spending than to all other sectors of the economy combined.
During the last big recession in the USA between 2007 and 2009 which is a guidance for what could happen in Australia in coming months the economy steeply contracted, and millions of jobs were lost.
Consumer spending experienced the most severe decline since World War II.
Households cut spending, shed outstanding debt, and increased their rate of personal savings in response to reductions in income, wealth, confidence, and credit access according to the US Bureau of Labour Statistics.
BLS estimates that the number of jobs tied to consumer demand declined in the millions from the 2007 employment peak to 2010, the year of the employment trough.
The biggest job losses were in three industries, manufacturing, professional and business services, and retail trade.
In Australia right now the biggest declines are set to be in the early days of the Coronavirus emergency, travel and hospitality as well as events and entertainment are segments that are being hit.
Half of total job losses between 2007 and 2010 occurred in investment-related employment, which is typically more sensitive than consumer-related jobs to the business cycle.
This is already happening in Australia with the decline in stock values.
In the US recession which Australia avoided the largest annual decline in consumer-related employment occurred in 2009 as the recession was waning.
In 2010, after the recession officially ended, consumer-related employment accounted for the majority of job declines in the entire economy.
Despite the post-recession decline in consumer-related employment and the historic decline in spending, consumer-related employment demonstrated relative stability both during and after the recession, upheld by gains in two sectors: health care and social assistance, and educational services.
This is where the Australian Government is currently injecting stimulus in an effort to prevent mass unemployment.
They are also working to prop up small and medium businesses by handing out incentives for people to spend.
Right now, CE and appliance sales are still buoyant with demand for freezers, notebooks, web cams, and networking gear as well as TV’s above the seasonal average according to retailers.
Some retailers that ChannelNews have spoken to are tipping a “shocking winter” with an uplift coming in September as the Federal and State Governments bring the Coronavirus under control.
S&P Global Ratings is forecasting a global recession this year, as the spread of coronavirus accelerates and its economic effect worsens.
In a report, S&P economists say they now estimate GDP growth in 2020 at just 1.0pc to 1.5pc with “risks remaining firmly on the downside”.
“The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilisation has begun,” says S&P Global’s Chief Economist Paul Gruenwald.
“Europe and the US are following a similar path, as increasing restrictions on person-to-person contacts presage a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year.”