Australia household spending to grow 3.5% in 2022: Fitch Solutions
Recovery of consumer spending relies on the vaccination against COVID-19.
Australia’s real household spending is expected to grow by 3.5% over 2022 to reach $676.5b (AUD939.7b) as spending is seen to return to normal with the easing of restrictions, according to a report by Fitch Solutions.
Fitch Solutions said the forecast is lower than the 5% estimated for 2021 as it is a result of “unfavourable base effects.”
“Indeed, the COVID-19 pandemic resulted in a significant contraction of 5.8% in 2020, leading to above-trend growth in 2021. Over 2022, consumer spending growth will begin to moderate, as Australian consumers continue their recovery from the contraction in spending in 2020,” it said.
Fitch noted that the forecast in real consumer spending forecast is in line with its Country Risk team’s forecast of the Australian economy growing by 3.5% year-on-year in 2022, following a 4.2% estimated YoY growth in 2021.
The economic growth is dependent on consumer spending, easing unemployment which is seen to decline to 5% in 2022, and the continued tourism industry recovery, with tourist arrivals expected to rise 259% YoY.
Inflation in Australia is expected to average 2.6% in 2022, still within the Reserve Bank of Australia’s 2-3% target despite the unemployment forecast reaching 5%. The inflation is also seen to “unlikely derail consumer outlook.
Consumer confidence in December 2021 dipped to 104.3, which is the lowest since August last year and below the 10-year high of 118.8 in April 2021. It added the lifting of city lockdowns and easing restrictions during the holiday period would lead to a stronger retail sales growth to the end of 2021.
However, it noted that the consumer confidence index was down by 6.9% YoY in December which shows the “ongoing consumer wariness” since the detection of the more transmissible Omicron variant in the country.
“Furthermore, surging infection rates across the New Year period may fuel consumer reticence to go to crowded areas like shopping malls, potentially undermining the retail spending growth trajectory in the opening weeks and months of 2022,” it said.
Fitch said that the recovery in consumer spending relies on the country’s vaccination drive and the resulting drop in coronavirus infections and hospitalisation and death rates. These factors would boost consumer confidence and retail sales, it said. A total of 92% of Australia's population aged 16 and above have been vaccinated as of 6 January, it said.
It added that as of 7 January, restrictions in Australia include social distancing and wearing of face masks mainly in public transport, airport and indoor space settings. There were also limitations imposed on the number of people allowed at any one time in shops, cafes, restaurants, and other public spaces, among other restrictions.