What is driving the slowdown
KordaMentha partner Scott Langdon is well placed to comment on the slowdown in consumption, as he is currently administering business closures like retailer Roger David,Crabtree & Evelynand Laura Ashley.
He warns that it is not the wealth effect – where falling house prices tighten consumer spending habits – that slows consumption but employment and income. And one of the big hits to creating more employment and income growth has been tighter lending conditions stemming from the Hayne royal commission.
“The small- and medium-size business space is such an important part of the backbone of the economy. It employs so many people and that’s where wages grow,” Mr Langdon said, “But the royal commission has placed a lot of restrictions on people borrowing money to set up businesses.”
“People aren’t even bothering to get a loan now because they think it’s too hard,” said Mr Langdon.
In his address to The Australian Financial Review Business Summit on Wednesday, Reserve Bank governor Philip Lowe said the more important influence on consumption than house prices was household income.
“It is plausible that, for a time, this didn’t affect people’s expectations of their future income growth … So they didn’t change their spending plans much…
“However, as the period of weak income growth has persisted, it has become harder to ignore it. Expectations of future income growth have been revised down and it is likely that this is affecting spending.”