Australian Retail Sales Dip in December, But Q4 Contribution Buoys Economy
December retail sales in Australia declined marginally as consumers reined in spending following Black Friday promotions the previous month. However, discounting strategies helped drive a much-needed contribution to economic growth in the fourth quarter.
According to data released by the Australian Bureau of Statistics (ABS), retail sales decreased by 0.1% in December compared to November. Despite the dip, the result exceeded analyst expectations of a 0.7% drop, supported by Cyber Monday promotions that coincided with December and widespread discounting throughout the month.
"Cyber Monday boosted spending on household goods, with consumers taking advantage of discounts on high-value items," said Robert Ewing, Head of Business Statistics at the ABS.
Fourth quarter sales surged by a real 1.0% to A$105.8 billion ($64.93 billion), surpassing forecasts of a 0.8% gain and marking the largest increase since early 2022. Discounting also fueled volume growth as households tapped into tax cuts and government subsidies distributed in the second half of the year.
This spending is expected to contribute around 0.2 percentage points to gross domestic product (GDP), a modest but significant boost given the economy's recent stagnation under the weight of elevated mortgage rates and cost-of-living pressures.
Relief may be on the horizon, as markets anticipate the Reserve Bank of Australia (RBA) will deliver its first rate cut in four years at its meeting on February 18. Futures suggest a 95% probability of a 25 basis point reduction in the current 4.35% cash rate, with two such easings priced in by year-end.
The central bank hinted at a potential policy shift in December, and a surprisingly weak inflation report last week further opened the door to an early rate adjustment.
"Disinflation has occurred faster than the RBA expected, giving the Board the necessary confidence to initiate the rate-cutting cycle," said Luci Ellis, Chief Economist at Westpac.
"We believe the RBA will maintain a data-dependent approach and is unlikely to rush into further moves," she added. "Contitional upon continued inflation declines and some easing in the labor market, we anticipate cuts in May, August, and November, bringing the terminal rate to 3.35%."
Adding to the case for monetary loosening is the potential impact of U.S. President Donald Trump's tariffs on China, Mexico, and Canada on global trade. Australia is a significant exporter of resources to China, and tariffs could hinder Chinese economic growth and its demand for commodities.
Financial markets reacted negatively to these uncertainties, with the Australian dollar falling by 1.6% to its lowest level since the 2020 pandemic, reaching $0.6115.