Thursday, May 07, 2009

Are the cash splashes making us splash cash?

You bet

WAYNE Swan and Kevin Rudd have received a ringing endorsement of their $20 billion series of "cash splashes" as new evidence points to a four month-long shopping shopping spree unmatched in the developed world.

Retail sales figures for March point to a jump of 2.2 per cent in seasonally-adjusted spending, more than offsetting a dive of 2 per cent in February.

Since the first stimulus payout in December Australian retail spending has climbed an extraordinary 4.5 per cent, a result unmatched in the United States in which spending slumped 2.5 per cent, New Zealand in which spending slumped 1.7 per cent, and Canada and Japan in which spending slumped 3.1 per cent.

Only in the United Kingdom among other developed countries did spending increase in those four months and that was by 1.6 per cent, less than half of the Australian boost...

Australians spent a seasonally-adjusted $76.6 billion in the four months following the stimulus payments, more than in any four-month period in Australian history.

Economists surveyed yesterday expected the good news to continue.

"We’ve got every reason to think that sales will maintain decent momentum going forward," said ICAP Securities economist Adam Carr.

"The second stimulus package has only started to hit consumers ensuring that retail sales are likely to remain buoyant over the next couple of months," said CommSec economist Savanth Sebastian.

The $8.7 billion December stimulus handout was followed by $4 billion in March and a further $7 billion in April.

A belief that the stimulus payments were flowing through into spending is one of the reasons the Reserve Bank board decided to keep interest rates on hold at its meeting on Tuesday.

Updated Reserve Bank forecasts to be released tomorrow (FRI) will show that the bank is expecting Australia to return to economic growth at the end of the year after what would be one of the mildest recessions on record.

The Bank's view was endorsed by the International Monetary Fund yesterday which predicted that the Australian economy would return to positive growth in 2010 after shrinking 1.1 per cent in 2009.

In a strong endorsement of economic management in Australia and New Zealand the Fund said in its Regional Outlook for Asia and the Pacific that that this was due to those nation's "strong policy response, healthy financial sectors, and exchange rate depreciation".

Treasurer Wayne Swan accepted the compliment but noted the report also highlighted the effect of the global recession on Australia's customers including Japan, South Korea and Taiwan.

Emerging Asian economies excluding China and India were set to contract by "a staggering" 15 per cent over the year.

He welcomed the retail trade news saying the Coalition had to explain why it had opposed the measures now shown to "have clearly been very effective in supporting activity and jobs in the face of a savage global recession".

At the National Press Club Opposition Leader Malcolm Turnbull said it was unsurprising that if "you handed out billions in one hit, some it will be spent".

"Yes, it has had an impact on retail sales figures, but it was very little bang for a very big buck. If you want to spend government money on stimulating the economy you should spend it on infrastructure."

The extra spending in the four months since the stimulus payments has been spread across all states and concentrated in department stores in which spending jumped 10 per cent.

"The windfalls have allowed consumers to accelerate planned purchases that they would have been saving for and department stores were the lucky recipients," said CommSec economist Savanth Sebastian. "No doubt consumers are still hunting for discounts and bargains, a trend that is likely to continue in coming months."

Other economic news pointed to Australia's second-biggest trade surplus on record, $2.4 billion in March, brought about by sharply higher rural exports and a further fall in imports.

Employment figures due for release this morning are expected to show a another drop in the number of Australians in work and a further rise in the unemployment rate, at present 5.7 per cent.