From the General Manager

Economic Storm Clouds Ahead

IAN HORNE – AHA|SA GENERAL MANAGER

WATCH VIDEO: https://youtu.be/SNKcK7RjTQU

Despite increasing volatile times internationally, business confidence in Australia and South Australia is apparently holding up well in the face of rising interest rates and inflation however there are signs households may start winding back on spending and that’s not good for hospitality.

Hospitality is more often a discretionary spend and is sometimes the ‘canary in the mine’ i.e., an early warning sign of tightening consumer spending.

That said, new figures from the Australian Bureau of Statistics showed household spending was running at a healthy 7.6 per cent annually in April, prior to the Reserve Bank of Australia lifting the cash rate in May.

Further, as COVID-19 restrictions have eased, household spending increased in eight of the nine spending categories in April 2022 compared to April 2021. Spending in recreation, hospitality and retail to April continued to rise. Spending on health was the only category to decrease in April 2022.

The Australian Institute of Petroleum said the national petrol price average rose 2.1 cents to 199 cents per litre in May but Victoria, South Australia, Western Australia, the Northern Territory, Tasmania, and Canberra were all consistently paying more than $2 per litre.

Further shaking consumer confidence will be a slump in Australian shares as seen in the first half of June.

Tens of billions of dollars were wiped off the market on Tuesday 14 June after Wall Street tanked either side of our long weekend. The US sell off of shares was sparked by fears of aggressive interest rate increases by the Federal Reserve after inflation remained stubbornly above eight per cent.

Local economists now expect the Australia’s Reserve Bank’s cash rate to rise to 2.10 per cent by the end of 2022, from 0.85 per cent currently, after upwardly revising an earlier forecast of 1.60 per cent. The bank also cut its economic growth forecast for 2022 to 3.5 per cent, from 4.7 per cent previously, and is predicting a 15 per cent drop in Australian house prices by the end of 2023.

The certainty is that business confidence will be tested when faced with a new environment of higher inflation, rising interest rates, and risks to economic growth.

On top of all these macro influences is the Fair Work Commissions decision on National wage increases, just announced at around 5% for the lowest paid workers, plus the State Governments efforts to rewrite the Return to Work (RTW) legislation to prevent workers compensation premium blow outs in light of the Summerfield legal case that will have significant cost implications if not addressed urgently and of course our Industry’s chronic shortage of workers, experienced or otherwise.

The certainty is that business confidence will be tested when faced with a new environment of higher inflation, rising interest rates, and risks to economic growth. Inevitable increasing cost of goods and labour will put upward pressure on margins.

On the positive side, Australia’s unemployment levels will see the lowest unemployment rate since the 1970s!

Across the states and in most industries conditions remain relatively strong. Hospitality’s recovery since January this year – just five months ago, has been substantial.

The AHA is very much aware of these challenges and will continue to advocate to our new Federal and State Governments on the importance of Hotels and hospitality and its economic and social contribution to the well-being of the State.

It may well prove that the rebound from COVID-19 goes some way or a long way to countering any threats of a downturn, nevertheless, members should take the opportunity to review their business practices, their marketing strategies and their employment practices and call on the AHA|SA for specific advice and support as needed.