Fed:Data to show success of stimulus package next week
By Colin Brinsden, Economics Correspondent30 Jan 2009 2:20 PM
CANBERRA, Jan 30 AAP - Have you been doing your bit for the Australian economy during the summer break?
As credit card bills roll in and bank balances look a lot thinner, you may feel you have done more than enough spending to support the economy, whether or not you got a federal government cash handout.
The success of the federal government's $10.4 billion economic stimulus package will become evident over the next couple weeks as official data rolls out for the December period.
The package included $4.8 billion worth of payments to pensioners and $3.9 billion in cash handouts to low-income families, and were sent out during December for the sole purpose of being spent to keep the economy afloat as other major economies reeled into recession.
Whether the money was spent or saved will become clear when the Australian Bureau of Statistics releases December retail trade data next Thursday.
The Australian Retail Association said it will also put out data for the post-Christmas sales period next week.
The government will be hoping for strong numbers to beef up economic growth and stave off the immediate threat of a recession.
Retail spending makes up 60 per cent of domestic demand in the gross domestic product equation.
Anecdotal evidence of spending has so far been mixed.
The country's biggest retailer Woolworths says its 8.8 per cent jump in sales during the first six months of the 2008-09 financial year was helped along by the government's stimulus package.
"There is no doubt that the government fiscal stimulus was a positive for us," Woolworths chief executive Michael Luscombe said.
Affordable furniture retailer Fantastic also gave the package the nod of approval, saying it has given sales a boost and improved its earnings outlook for the financial year.
In sharp contrast, the electronics retailer Strathfield has been placed in voluntary administration saying trading results were "less than satisfactory" over the Christmas and post-Christmas sales period.
Beyond the shopping malls, a trip to the Gold Coast suggested the recession is yet to hit.
A stay at the luxury five star Palazzo Versace hotel revealed guests still glistening in gold - while hogging the pool lounges - and little sign of anyone feeling the pinch.
Admittedly the hotel was offering big discounts on its rooms.
How else could an economics correspondent afford it?
Theme parks such as Waterworld and Dreamworld appeared to be bustling, and "Joe", a tour bus operator who has been delivering tourists from their hotels to the parks for a number of years, said it was much busier than last year and put it down to the government's package.
But has this stimulus package been a worthwhile exercise and will it stop the rot?
On its own, it is just a one off boost, while the global situation has become even more grim and entrenched.
Indeed, the government is already working on yet another stimulus package to compliment over $40 billion of measures to support the car industry, local government, state health and education, infrastructure and business.
"We don't rule out any action in this environment," Treasurer Wayne Swan said this week.
The International Monetary Fund (IMF) delivered a further blow this week, slashing its global economic growth forecast again for 2009 to a mere 0.5 per cent, which would be the worst outcome since World War II.
While the IMF's latest update didn't mention Australia by name, the bad news for the country was its further downgrading of China's growth to 6.7 per cent for 2009.
This is a far cry from the nine per cent growth recorded in in 2008 and a staggering 13 per cent in 2007, and the major driver for its demand for resources from Australia.
And it not just China that's a problem.
RBC Capital Markets senior economist Su-Lin Ong says data also from Korea, India and Singapore in recent weeks has highlighted the rapid deterioration in activity across the region.
"Effectively eight of Australia's top 10 export destinations are now in recession," she said.
All of which means the Reserve Bank of Australia (RBA) will deliver another hefty interest rate cut next Tuesday when the central bank holds its first board meeting of the year.
The RBA cut its cash rate by 300 basis points over the last four months of 2008 to 4.25 per cent.
The central bank suggested in December when it cut the rate by 100 basis points that the period of sizeable rate cuts was drawing to a close, and further moves would be more modest.
But Commonwealth Bank of Australia chief economist Michael Blythe said a lot has happened since December.
"The global economy appears to have all but imploded in the final months of 2008, and expectations for 2009 have suffered as a result," Mr Blythe said.
"The RBA placed a lot of weight on the deteriorating global backdrop in its rate decisions in 2008, and the bank even ignored some of the lingering domestic inflation issues when it embarked on its aggressive easing campaign back in September."
Mr Blythe expects the central bank will cut the rate by 75 basis points, although there is a chance it will move by 100 basis points as it did in both October and December.
"Whatever the outcome in February, we would expect to see at least a further 50 basis points thrown into the pot in April."
Financial markets are betting on a cash rate of just two per cent by June.
