(22 July 2011 – Australia) Westpac has predicted consumers will further increase their already high rates of saving, adding to the gloom retailers are currently feeling.The bank’s leading index for May yesterday pointed to below average economic activity in the second half of this year, thanks in part to sluggish growth in household spending.
Westpac’s chief economist, Bill Evans, said the index had posted its lowest growth rate since September 2009, and activity would remain weak as ”the cautious consumer seeks to further raise its savings rate”.
A further rise in saving by consumers would push the savings ratio towards levels not seen in decades.
Households were already saving 11.5 percent of their incomes in the latest March quarter – close to the highest savings ratio since the 1980s.
Mr Evans said the index was consistent with Westpac’s expectation that the Reserve Bank’s next move would be a cut in official interest rates, though he conceded the RBA was ”a long way” from Westpac’s view.
In another worrying sign for retailers, figures from CommSec showed economy-wide spending dropped 0.3 percent in June, following another fall in May.
CommSec’s Business Sales Indicator said the weakness was concentrated in large retail outlets and spending on automobiles.