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The coronavirus global pandemic continues to deliver profound economic and financial consequences, including the US Federal Reserve’s dramatic action to cut the benchmark interest rate by 100 basis points to zero. Last week’s Australian government stimulus package was also a significant response, but may still not be nearly enough to stem the economic tide in the short term as many parts of the economy are increasingly closed off.
Retail is one sector seeing a mixed picture, with shoppers rapidly disappearing from many segments, but supermarkets currently in overdrive. Australia’s retail sector faced a tough year in 2019, but coronavirus is providing an unprecedented challenge in 2020.
Consumer confidence was already weak in late 2019 and is being further tested by the virus. The Westpac-Melbourne Institute consumer confidence index fell to a five-year low this month, with increased concern about the near-term economic outlook. Put simply, people who are scared don’t spend. Many retailers are at the forefront of the impact as discretionary spending is put to one side.
The current retail downturn might be particularly felt in the larger consumer durables category, where there is an opportunity to defer, but may also be seen in the purchase of ‘little luxuries’, which may be on hold while consumer caution dominates. This will particularly be the case as greater social distancing is introduced, and some retailers may be forced to temporarily close store operations.
For some, however, there is currently much greater demand. Australians are building stockpiles of food and essentials, and some items are increasingly scarce. One person building a larger personal inventory of food and essentials looks like sensible stocking up, but all Australians doing the same thing clearly looks like panic buying. Supermarkets and pharmacies have been caught up in the consumer frenzy, and quickly replenishing supply is a major business challenge.
According to Deloitte Access Economics’ latest quarterly Retail Forecasts subscriber report (Q1 2020):
The challenge is that we are potentially still only in the early stages of the coronavirus crisis, and the timing of the eventual recovery is unknown. While this presents significant economic challenges, such market disruption can also create some opportunities for business, and it’s often at points of significant disruption that great organisations stand out.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.
Emily is an Associate Director within Deloitte Access Economics' macroeconomic team in Sydney. She has experience delivering economic analysis and commentary to a range of clients across the public and private sectors.