SYDNEY, July 4 (Reuters) - Australian shoppers splashed out on clothing and at department stores in May in a much-needed fillip to consumption, while a strong month for resource exports also augured well for economic growth.
Consumers had been missing in action in the first quarter so the better news on sales, even though only moderate by historical standards, was enough to lift the local dollar atop 74 U.S. cents.
Wednesday’s figures from the Australian Bureau of Statistics showed retail sales pipped forecasts by rising 0.4 percent in May, while April was revised a tick higher to 0.5 percent.
The combination of two firmer months meant sales were running ahead of a poor first quarter, suggesting consumption overall likely added more to growth.
“The figures suggest that, after shooting out of the blocks in the first quarter, the economy maintained a decent pace of growth in the second quarter,” said Paul Dales, head of Australian economics at Capital Economics.
While the economy expanded by a brisk 1.0 percent in the first quarter, consumption had been only a minor contributor.
Indeed, despite the gains in April and May annual growth in retail sales still slowed to a sombre 2.5 percent, well below the 5 percent-plus that used to be considered commonplace.
Consumers have been cash-strapped by miserly wage growth and record levels of household debt, while intense foreign competition has forced widespread discounting, undermining the dollar value of sales.
That is a headwind for the whole economy given the retail industry rakes in A$315 billion ($232.38 billion) a year, or about 18 percent of GDP, and is the second biggest employer after healthcare with 1.3 million workers.
It is a major reason the Reserve Bank of Australia (RBA) held interest rates at record lows at its July policy meeting this week, and why markets foresee scant chance of a tightening until far into 2019.
With consumers constrained, it was just as well that Australia’s exporters were faring better.
The country’s trade surplus widened to A$827 million in May, from A$472 million the previous month, as a 4 percent increase in exports outpaced a 3 percent rise in imports.
Total exports are well on the way to topping A$400 billion this year for the first time, led by iron ore and coal.
Another star performer has been liquefied natural gas (LNG) as new supply comes on stream after years of multi-billion dollar investment. On current projections, Australia is soon set to overtake Qatar as the world’s largest exporter of the energy.
An added windfall has come from the steady rise in oil prices as the value of LNG contracts are linked to the crude price over time.
Demand in recent months has also been surprisingly strong from China, South Korea and Japan, though that could be at risk if the Sino-U.S. tariff row turns into an outright trade war.
Yet while LNG might fatten Australia’s export earnings on paper, Australians get to see a lot less of its riches.
The main gas producing companies are majority owned by foreigners - estimates are that less than 20 percent of the equity is held by Australians.
Those companies also get to offset their huge investment costs against taxes, meaning it can be a decade or more before any of the windfall in earnings shows up in government coffers. ($1 = 1.3556 Australian dollars) (Reporting by Wayne Cole Editing by Shri Navaratnam)