RBA Says Australia's Big Retailers Can Cope With a Weaker Economy

(Bloomberg) --

Australia’s biggest retailers are generally well-placed to survive the sluggish economy and weak growth in consumer spending, said a senior Reserve Bank official.

While retailers and investors in the sector face a number of challenges, listed firms’ profitability was broadly stable and they were able to meet their short-term liabilities, Assistant Governor for Financial System Michele Bullock said. The outlook was a bit gloomier for unlisted companies, of which a quarter have gearing ratios above 100%.

“Smaller retailers appear to be facing more difficult conditions in both the listed and unlisted sector,” Bullock said in notes of a speech Thursday about financial stability in the business sector. “Having said that, there is no current evidence of widespread vulnerability and difficulties in the sector appear unlikely to pose a significant risk to the banking sector.”

Economists aren’t sounding so confident, with some concerned that back-to-back interest rate reductions and the government’s signature income tax cuts don’t appear to have sparked an increase in consumer spending. Stagnant wages growth and offshore headwinds stemming from trade tensions and dovish central banks are further weighing on the industry.

June quarter retail sales data released Friday rose less than expected, with volumes the weakest since 1991, according to Callam Pickering, an economist for Asia-Pacific at Indeed.com.

Bullock warned that challenges faced by bricks-and-mortar retailers were spilling over into commercial property vacancy rates, which have increased to around 5%. There was also a risk that highly-indebted unlisted retailers were vulnerable to asset devaluations or losses, which in turn increases the chance that they won’t be able to meet their short-term liabilities without selling assets, said Bullock.

The RBA is sounding more upbeat on the mining sector, as booming profits mean their balance sheets are well-placed to absorb shocks “perhaps more than has been the case for some time,” Bullock said.

“In general, the financial health of businesses looks sound,” said Bullock. “It is nevertheless important to keep an eye on developments in the business sector and remain alert to possible risks to financial stability.”

To contact the reporter on this story: Chris Bourke in Sydney at cbourke4@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Peter Vercoe, Michael Heath

©2019 Bloomberg L.P.