By Stella Qiu
SYDNEY (Reuters) -Australian retail sales rose only modestly in March and sales volumes were flat for the first three months of the year, suggesting consumer spending made no contribution to economic growth last quarter.
The subdued result adds to the case for another interest rate cut in May, especially given the economic outlook is now more uncertain as hefty U.S. tariffs on China and elsewhere curtail global trade and fuel fears of a U.S. recession.
Helped by lower borrowing costs and slowing inflation, retail sales rose 0.3% in March from February, when they edged up 0.2%, data from the Australian Bureau of Statistics on Friday showed. The outcome was just below market forecasts of a 0.4% increase.
Sales volumes – which are adjusted for price changes to reflect real growth – for the first quarter were flat at A$105.7 billion ($67.7 billion), missing forecasts of a 0.3% rise. That followed two quarters of gains.
“Overall, this is a rather weak set of data highlighting the slow recovery in consumer spending,” said My Bui, an economist at AMP. “Most discretionary purchases were weak and shows some consumers’ restraints after the recovery in late 2024.”
“There are now even more arguments for the RBA to resume its cutting cycle in May.”
The Reserve Bank of Australia skipped a chance to move in April but opened the door to a rate cut by noting the May meeting would be an opportunity to revisit monetary policy settings. Swaps imply a quarter-point rate cut in the 4.1% cash rate this month has been fully priced in.
The bureau noted that the retail industry was heavily affected by cyclone Alfred in Queensland, with many shops closed and people advised to stay home. The cyclone, however, was downgraded before it landed.
Spending on food rose 0.7% in March, in part due to precautionary buying ahead of the cyclone, but department stores and cafes and restaurants both saw a 0.5% drop.
On a per capita basis, volumes fell 0.4% as consumers cut back on their purchases.
The soft result should allay concerns from policymakers that consumer spending could rise more strongly than expected amid slowing inflation, tax cuts and a cut in interest rates in February.
The incumbent Labor Party is promising more cost-of-living relief ahead of a general election on Saturday, but consumers could remain cautious given global trade uncertainties that have at times rocked financial markets.
Consumer sentiment slumped in April amid the market volatility while sales in the property market slowed markedly.
“The hit to confidence and heightened uncertainty generated by tariff announcements will hold spending back in the coming months,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
Langcake added the consumers, however, remained in a healthy shape, as the labour market stays strong. “Moreover, interest rate cuts and greater government support through election promises will keep some momentum in consumer spending,” he said.
($1 = 1.5620 Australian dollars)
(Reporting by Stella Qiu and Wayne Cole; Editing by Edwina Gibbs and Kim Coghill)
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