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				Westpac economist predicts drinks growth in slowing economy

Westpac economist predicts drinks growth in slowing economy

June 19, 2019

Westpac Senior Economist Elliot Clark told the Drinks Association Network Breakfast on Wednesday that further rate cuts from the Reserve Bank of Australia (RBA) and significant investment in infrastructure by the federal government were essential to stimulate Australian consumer spending and grow the domestic economy.

However, Clarke assured the audience that the drinks industry could expect to see Australians continue to spend on alcohol. He suggested that even with consumer discretionary spending down, people were likely to consume alcohol with friends and family at home, rather than at bars and restaurants.

Positive news for retailers and wholesalers, less so for hoteliers and restauranteurs.

From an international perspective, Clarke looked to China and the rising Asian middle class as the strongest opportunity for Australian economic growth on the international market. Although, with Westpac’s prediction that the Australian dollar will fall to $US0.66 in the first half of 2020, the US market while unstable does present a good opportunity for local exporters.

Stimulating the domestic economy with infrastructure & cash rates

Clarke attributed the weakness of the domestic economy to a number of factors, including a flattening of wages growth, an oversupply in the market of skilled job seekers, declining wealth in Sydney, Melbourne and Perth, and increased household debt leading to a reduction in consumer spending.

While it is expected that house prices in Sydney and Melbourne will decline another 5% over the next six months before flattening out, he observed that house prices are still at an unattainable level when compared historically.

With all these factors at play, Clarke said consumption "remains stuck in the slow lane".

He said that despite the recent federal election and the heralding of new fiscal policies, consumers are “still sitting on their hands” with no increase in discretionary spending recorded.

He noted: “We have quite significant reservations about the benefit the economy will see from these tax benefits. What we would really like to see them (the government) do is a lot more on the infrastructure side.”

Presently, NSW and Victoria are the biggest part of Australia’s strong infrastructure story with other states being less dynamic. However, he is optimistic about rebounds being seen in Western Australia, and more dramatically in Queensland, as they adapt to accommodate significant population growth.

Public transport projects are the prevalent infrastructure projects being undertaken, but Clarke put forth that the opportunities for electricity and energy generation, essential infrastructure projectsn and public and private partnerships are plentiful and long overdue.

He added: “We need this infrastructure. It should have been built a long time ago and there is a lot more we can do right now…It’s about making sure that cities cannot just withstand the population growth that they are experiencing, but also that they can thrive and be really effective.”

Westpac argues that infrastructure is running behind in Australia by five to 10 years and an acceleration in infrastructure would make for a swift and decisive way to bring about more jobs, propel businesses to think about how they can take advantage of the construction - piggybacking their own new ventures on it, and inject more money into the economy quickly.

Clarke predicts that the RBA will make another two rate cuts this year, following the cut by 25 basis points in June which saw the cash rate fall to a record low of 1.25%. Westpac predicts that by calendar year end, the cash rate could be as low as 0.75%, anticipating cuts from the RBA in August and November.

Global: US vs China

As robust as Australia’s export economy is when it comes to resources, Clarke emphatically pointed out that Australia’s service exports – such as tourism, education and business – present an opportunity for economic growth, especially as business services in Australia becomes increasingly interconnected with Asia.

He suggested that the Chinese and Indian markets with their sustained, significant growth and the rise of the Asian middle class present the best opportunity for Australian investment, as long as Australia commits to offering goods and services of the highest quality.

Thank you to the Drinks Association's members, guests and corporate partners who attended this morning's event. 

Drinks Association Network Breakfast
Drinks Association Network Breakfast

Pictured main: Elliott Clarke with Drinks Association CEO Georgia Lennon

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