The $AU/$US dollar recently reached its highest exchange rate since it was floated in 1983. On 15th of October 2010 and the 3rd of November the Australian dollar reached parity with the US dollar for the first time since becoming a freely traded currency. This is causing many in the community to question what this means for the economy. One question is how this affects consumer spending and the retail industry.
Since the GFC retailers have been hit hard. During a time of crisis the census is that households will save rather than spend. Now that the effects of the GFC have been felt by most across the nation the view is that consumer spending should begin to increase again. This is currently not the case, with some of the blame for the decrease in consumer spending being the increasing exchange rate. The prices of some products in Australia have not reflected the change in the exchange rate and this is causing many consumers to change their spending habits and purchase goods online and overseas instead of within Australia.
There have been calls by the Australian Retailers Association recently for higher taxes to be placed on online spending. Australian Retailers’ Association executive director Russell Zimmerman says Australians are set to buy $12 billion worth of products online this year, and he claims about 45% of that will be spent offshore. Recent figures from PayPal indicate about 40% of online expenditure is going overseas. Currently no GST or tax is applied to overseas purchases of less than $1,000. This could potentially result in a loss of over $600 million in GST revenue.
The other side of this issue is that it will make retailers more competitive. The bulk of online/overseas purchases are new technologies such as cameras and phones. What we should be seeing in the national market is a decrease in the cost of these products. This effect has been shown by the CommSec IPod index. The CommSec IPod index takes the US price of a standard IPod excluding all taxes. From July to September Australia became the cheapest place in the world to buy an AppleiPod nano music player. This is all thanks to the plunge in the Australian dollar. The bottom line is that our goods have become super-cheap for foreign buyers.
CommSec’s chief equities economist believes that the sharp fall of the Australian dollar since July will boost trade competitiveness and assist in insulating Australia from the downturn in the global economy. Over 2000 and 2001, the Australian dollar fell by 28 per cent to a record low of US47.75c, helping to insulate the economy from recession in the US.
According to the ABS Tasmania’s retail industry increased by 7.6% from 2008-2009, 2010 effects have not been released. The sectors that contributed the most to the growth of the industry were food retailing, newspapers and book reading and café, restaurants and takeaway food services. The clothing footwear and personal accessory retailing and household good retailing sectors had only a 1% and 1.3% growth respectively. The growth in these two industries however is decreasing when compared to previous years, in 2008 these two sectors had growth of 1% and 10.1% respectively.
Tell us how the increase in the exchange rate has affected your spending. Please head to;
http://www.imc-link.com.au/
and fill out a short 2 minute survey.
