Westpac CEO Peter King expects a soft landing for the Australian economy but sees a period of pain ahead for the retail sector.
Speaking at the Macquarie Australia Conference, King said the retail sector faced significant challenges as consumer spending declined in response to increased living costs. This downturn is exacerbated by retailers that have overstocked, potentially leading to more acute problems as purchasing power wanes.
Recent retail data from the Australian Bureau of Statistics shows a 0.4% drop in spending from February to March, marking a continuation of six months of stagnant growth and record-low expansion despite population increases.
King pointed out the impact of inflation and higher living costs filtering through to the consumer market although he noted that Westpac had maintained low and stable write-offs in its business lending portfolio.
He also warned that while Australia’s banking sector currently enjoyed low loan losses, issues across broader loan portfolios were likely to emerge eventually.
Despite their challenges, the banks are enjoying a period of relative stability, yet King said that a downturn was inevitable, reflective of the cyclical nature of the economy.
He downplayed concerns about a surge in credit card debt and refuted claims that responsible lending laws have overly restricted access to the housing market, suggesting instead that the primary barrier was the high cost of housing.
Furthermore, King highlighted concerns regarding the rise of private lending and the need for stringent regulatory standards to manage this growth, emphasising the importance of maintaining robust safeguards in line with those applied to the banking sector.
However, King did note the resilience of Australia's top companies, attributing their constrained growth primarily to a shortage of skilled labour.