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Economist reflects on spendings and savings of 2023

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We’ve said “no” to the new fridge, put up with the old couch and made-do with our pre-loved clothing and footwear this year. 

And, while some might reflect on 2023 as the year of natural disasters, within the home it was a time of relentlessly rising interest rates and a ruthless tightening of family budgets. 

CreditWatch chief economist Anneke Thompson takes an economists’ look at the best and worst events and impacts for Australian businesses in 2023. 

“Consistently low consumer sentiment alongside rising interest rates have been the major economic themes of 2023,” she says. 

“The Reserve Bank of Australia (RBA) has been relentless in trying to stem inflation that was already ingrained in the Australian economy at the outset of 2023. 

“The cash rate has risen by 125 bps over the year, following a full 300 bps rise over 2022. As a result, consumers have reported a severe unwillingness or inability to spend on discretionary items such as household goods, furniture, and clothing and footwear. 

“Towards the latter half of 2023, restaurant bookings have also been in decline, with changes in seated diners declining each month (compared to the same month prior) since April 2023.  

“According to data provided by OpenTable, restaurant bookings in Australia are down 5% in December 2023 compared to the year prior, which is the largest decline among all countries monitored.  

“While a difficult year for the retail and food and beverage sectors, Australians still continued to spend on arts and entertainment, with this sector having one of the lowest risks of default in the country.” 

The Best 

Monetary policy – as difficult as higher interest rates are for household and business borrowers alike, higher interest rates are having their intended effect of reducing inflation. There is no solution to inflation that doesn’t negatively impact some sector of the economy, and in Australia, due to our very high levels of household debt, it is homeowners with an outstanding loan that bear the biggest burden.  

Business – consistent with 2022, business conditions are continuing to hold up relatively well. While we are seeing some decline in conditions, and a significant decline in business confidence, Australian businesses, by and large, have weathered the economic conditions in 2023 relatively well. 

Labour force – the unemployment rate, as of November 2023, was 3.9%, still well below pre-COVID levels. Despite extraordinarily high levels of migration, the need for labour in industries such as healthcare, education, retail trade, accommodation and food services was so great that employment growth almost kept up with population growth.  

The Worst 

Consumer confidence – consumer confidence has remained at near record low levels for the entire year. High interest rates and inflation are battering household budgets. This monetary policy cycle is also quite unique in that there is little indication at this point as to when the cash rate may move down. This causes great concern for borrowers, who are keeping a tight eye on budgets in order to be able to maintain loan repayments. 

Retail trade – despite record high migration levels, retail trade figures are still lower than they were in November 2022, which is a very unusual dynamic, and highlights just how much less money per person we are now spending in Australia compared to this time last year. Usually, in a time of high migration, retail trade will rise almost organically, as additional consumers need basic non-discretionary items.  

Average value of invoices – The average value of invoices as reported by CreditorWatch data providers is now down 34% year-on-year and almost half of the average value in November 2020. This points to a significantly reduced workload among small and medium-sized businesses in particular. 

The Outlook for 2024 

The early half of 2024 is looking increasingly likely to be one of the toughest, economically speaking, for some time in Australia.  

While consumer confidence has been in the doldrums for some time, business confidence is now starting to significantly wane, and many businesses are anticipating very subdued trading conditions at the start of 2024 and are reducing forward orders as a result – particularly in the retail sector. 

Unemployment has been slowing increasing over the second half of 2023, and this is likely to continue through the first half of 2024, with unemployment likely to reach the mid four per cents – still well below that of pre-COVID levels.  

The Federal Government’s decision to immediately contend with record high migration by reducing student visas should eventually ease pressure on the rental market in the capital cities, and this in itself will help ease inflation, as rents are a major contributor to the CPI basket. 

The good news, according to Thompson, is that the middle of the year should bring a drop in inflation.  

“Both household and business borrowers still have at least six months of high interest rates to contend with, but progress against inflation is being made, and that should be confidence boosting for Australian businesses,” she says.

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