Retail spending stays weak

Australian economic growth is still subdued, with retail spending staying weak.

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Retail spending rose 0.1 per cent in July, the Australian Bureau of Statistics (ABS) reported, worse than the 0.4 per cent rise economists were expecting.

Spending in June was unchanged (0.0 per cent) and only rose 0.2 per cent in May.

RBC Capital Markets senior economist Su-Lin Ong said the likely sub-trend pace of economic growth in the June quarter is continuing into the September quarter.

“We were particularly surprised by the weakness in retail sales,” she said. “We had thought the school kids bonus would boost retail activity, but that was not the case.

“It was another disappointing result, sales themselves remain pretty lacklustre.

“When you look at the breakdown, you can see weakness in some key categories, particularly department stores.”

The ABS also released trade and international investment figures which showed the current account deficit widened to $9.35 billion in the June quarter.

Ms Ong said the international trade figures were also quite weak.

“Net exports are pretty much not going to make a contribution to growth,” she said.

“It will confirm this below trend pace of economic activity.

“A pretty weak set of numbers all-around.”

Ms Ong said her forecast of 0.5 per cent economic growth for the June quarter is staying unchanged.

The gross domestic product data will be released by the ABS on Wednesday.

CommSec chief economist Craig James said consumer caution ahead of the federal election, along with a warm winter, had contributed to flat retail spending in June.

“Clearly the election has had a big influence in terms of slowing down the desire for consumers and businesses to spend,” Mr James said.

“We have to wait until the election is out of the road to see how the economy responds to low interest rates.”

Mr James also said the international trade figures pointed modest economic growth in the June quarter.

“The contribution of net exports to GDP in the June quarter was effectively zero, and then you’ve got government spending which is actually going to detract from GDP growth – it suggests a very modest outcome in terms of the economy for the quarter,” Mr James said.

“It suggests that for the first time in a long time, we could see the US economy growing at a faster rate than Australia, which is just quite remarkable.

“The positive is that the trade sector is not restraining or detracting from economic growth in a big way but the other side of the equation, the bad news, is that exports are not adding to growth at the moment.”