Australia to defy Europe's woes: Access

Europe's debt crisis has thrown a spanner in the works of a global economic recovery but an independent forecaster believes Australia will still strengthen this year.

Access Economics says Australia sells more to emerging economies than the "rich world", so 2010 should see the broader economy rebound.

This includes the retail sector which, while having been restrained by rising interest rates, should be supported by very strong jobs growth.

Releasing its quarterly Access Retail Forecasts on Thursday, director David Rumbens said rising house prices and retail spending normally go hand-in-hand because of the increased wealth effect.

However, an inverse relationship has developed between the two in recent months as rising home loan costs have left less room in the household budget for shopping.

"Retail sales growth over the nine months to March 2010 was just 0.3 per cent, a less than satisfactory result," Mr Rumbens said.

"By contrast, nominal house price growth over the year to March 2010 was an astonishing 20 per cent - a quick and substantial rebound following a moderate drop through 2008/09."

However, he said, for retailers "the cavalry is on the way" with a more respectable 0.6 per cent rise in sales in April.

While rising interest rates are hurting retailing, it should also take the "zing" out of house price growth, he said.

The strength of house prices has been a key reason for the rapid rise in rates - which have been lifted six times since last October.

In leaving the cash rate unchanged last week, the Reserve Bank of Australia said lending rates were now around 'normal', suggesting there may now be a pause in hiking rates.

"Escalating fears over Europe's debt levels will cement that in," Mr Rumbens said.

"That may allow underlying income gains from jobs growth to play a stronger role in supporting a lift in retail sales through the course of 2010 and 2011."

He said jobs growth had been impressive with more than 250,000 positions created between August 2009 and April 2010 - an annualised growth rate of 3.5 per cent.

More than 70 per cent of these jobs were full-time positions.

Access expects real - or inflation-adjusted - retail sales to grow by 2.3 per cent in 2009/10 and 3.2 per cent in 2010/11, after 1.6 per cent growth in 2008/09.

It anticipates even stronger growth, of 3.7 per cent, in 2011/12 in what it expects to be the peak of the next housing construction upswing.

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