Economy

Five sectors that are ruing the RBA’s decision to hold on rates

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Beyond the red faces of economists and pundits who predicted an interest rate cut yesterday, five key sectors are ruing the Reserve Bank’s decision to keep rates steady at 4.25%.

First the good news: the halt has pushed the Australian dollar to $US1.08, which is positive for savers, importers and travellers looking for even bigger bang for their buck before jetting off overseas.

And we can take heart in the Reserve Bank’s case that risks are subsidising overseas, Australian economic growth is close to trend and inflation is under control.

Still, with job losses across manufacturing and financial services heightening fears about the job outlook, which in turn dampens consumer confidence, these sectors are adjusting to the decision and keeping their eye on the March meeting.

Retailers

Council of Small Business of Australia head Peter Strong says “everyone’s disappointed” by the halt, but retailers had the highest hopes. This is particularly so given recent official retail figures showed a 0.1% fall for December – the first drop in six months, and well below expectations.

The Australian Retailers Association says the sector is “reeling” from the decision, which “creates the perfect storm for job losses amid declining retail trade and increased cost of living including mortgage stress”. The stock market agreed, pushing retail stocks down on the news.

ARA executive director Russell Zimmerman says he’s seen more closures and administrations over the past 12 months than he’s seen in the past 30 years, and if something doesn’t give soon, more jobs will be lost and stores closed.

Tourism

The halt has pushed the Australian dollar to yet another post-float high of $US1.08 this morning at the same time as official figures show the number of Australian travelling overseas soared in 2011, whereas international visitor numbers fell.

Australian Bureau of Statistics figures, released yesterday, showed that Australia had 5.8 million visitors last year, down 9,700 from the previous year, and a record 7.8 million Australians took overseas trips.

John Lee, head of the Tourism and Transport Forum values the “tourism deficit” at $8 billion, noting that economic growth in emerging markets had not compensated for weakness in our traditional markets of Europe and North America.

Property

The Housing Industry Association say the decision amounts to a missed opportunity to bolster business and household confidence, and was the wrong one given current economic conditions.

HIA chief executive Harley Dale adds that with the global and domestic economic outlook remaining clouded, there’s a risk new housing activity in Australia could revisit global financial crisis lows.

The Australian Industry Group-HIA performance of construction index, released yesterday, showed that construction activity fell last month for the 20th consecutive month.

Exporters

ANZ said this morning that the Australian dollar is “pressing levels that could be seen as unjustified given the mild outlook for the global economy” but the Australian dollar is likely to remain “stubbornly high over the next few years”, having already risen 3-5% against most major currencies over the past two months.

The bank says the likely explanation for the high dollar is the level of global liquidity and a critical change in the supply of highly rated AAA-assets caused by the credit downgrade of the US last August and several EU member states this January. “Our outlook for the high level of the Australian dollar is simple: get used to it.”

Manufacturers

Manufacturing can’t seem to take a trick at the moment – as seen by the recent job cuts at car markers and Mortein – and waiting at least another month for a rate cut won’t help.

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