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Bushfires dent shopper confidence and set to punch hole in Xmas sales

Confidence is down by 6.2 per cent over the past 12 months, with falls across all major sub-indicators including expectations about the economy through 2020 and the next five years.

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Expectations about the economy over the next 12 months dropped by 5.4 per cent in January to be 11.9 per cent lower over the past year.

“This low level of confidence is consistent with the generally lack lustre reports on consumer spending,” Mr Evans said.

Retail sales grew by 0.9 per cent in November with Mr Evans suggesting much of this was due to a pull-forward of purchases for the Black Friday promotions.

The NAB, which tracks retail sales through its retail network, expects national sales to have contracted by 0.1 per cent in December.

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The bank’s chief economist, Alan Oster, said while household goods, department stores and footwear and clothing had all enjoyed a strong November that was likely to be unwound in December.

He said the situation could get worse as the full impact of the bushfires play out.

“The current bushfire season – underway since September – is a national tragedy. The local economic impact in bushfire-affected areas has been extreme,” he said.

“While it is unlikely that the fires were a major influence on the national December retail data, there may be much more substantial second round impacts in January and February.”

The RBA board meets for the first time this year on February 4, with financial markets putting the chance of an interest rate cut at 50-50. That would take the official cash rate down to a new record low of 0.5 per cent.

Some critics have warned that a further rate cut will depress consumer confidence even further.

But Stephen Kirchner, a program director with the United States Studies Centre at the University of Sydney, has warned it would be worse to cut if the bank refused to cut rates even if its own forecasts suggested it was necessary.

Research suggests if the RBA did not cut interest rates, in a bid to protect consumer confidence, then it may ultimately backfire.

Research suggests if the RBA did not cut interest rates, in a bid to protect consumer confidence, then it may ultimately backfire.Credit:AAP

Dr Kirchner, in research published in the Australian Economic Review, found actual, expected and surprise increases in interest rates by the RBA negatively affected consumer sentiment.

He said if the bank decided against cutting rates in a bid to maintain consumer confidence even if the economy needed low borrowing costs then that could undermine confidence in the RBA.

“That would imply that the central bank should not act on its assements of the economy, which is likely to be self-defeating and damage policy credibility,” he found.

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