RETAIL sales across June hit greater depths than anticipated, with the fast spread of the COVID-19 delta variant across much of the country.
According to Capital Economics, sales volumes will continue to weaken over July as the virus continues to shut down more cities.
Retail sales in June fell by 1.8% compared to the previous month, with a 3.5% drop in Victoria at the start of the month as its capital went into lockdown until 10 June.
With its softer restrictions across Greater Sydney from 27 June, NSW sales fell by 2.0%, with a similarly timed lockdown in Queensland leading to 1.5% fall.
Food retailing was the only sector to record an increase in sales for the month, with spending on food largely unaffected by the impacts of lockdowns.
Meanwhile, for the quarter, sales rose by 1.3% up from the first quarters 0.5% drop, with goods prices estimated to have grown modestly.
“Unfortunately, the near-term outlook for consumption isn’t great. New South Wales has now shut non-essential retailing and similar restrictions resulted in sales falling to 10% below their pre-virus level in Victoria last August when sales in other states were up 13% relative to 2019,” said Marcel Thieliant, senior economist for Capital Economics, Australia and New Zealand.
Capital Economics has anticipated a 1.5% fall in consumer spending for the third quarter, with falls not forecasted to be as significant as those seen in 2020, with confidence in better shape.
“With the vaccine rollout continuing to accelerate, we still think that lockdowns will become obsolete towards the end of the year, allowing consumption to finally surpass its pre-virus peak in Q4,” said Thielent.
AMP Capital anticipates the total cost of lockdowns to reach around $12 billion, with Victoria’s lockdown costing around $1 billion a week and Sydney’s around $280 million a week.
“We had already revised down our September quarter GDP forecast to flat but this will likely now take it negative at around -0.7%. But of course this assumes the lockdowns outside NSW are short and NSW’s lockdown ends by mid-August after which activity rebounds,” said Shane Oliver, chief economist and head of investment at AMP Capital.
2021 will still likely see year on year growth, with an uptick in spending predicted in the December quarter, AMP Capital forecasts yearly growth to come in at 3.3% for 2021, which is down from its previous forecast of 4.8%.
“Given the increased uncertainty we now expect the RBA to delay the tapering of its bond buying from September to at least November, but still anticipate the first rate hike to come in 2023 albeit it may now be latter in the year rather than at the start of the year,” concluded Oliver.