By Chris Nicholls

SYDNEY: Credit Suisse has predicted a return to 2005/06 spending levels for the Australian retail market for the remainder of the year, as four official interest rate rises and further increases by individual banks start to bite.

The Credit Suisse Retail Sector analysis comes as the Westpac/Melbourne Institute consumer sentiment survey showed sentiment down at levels not seen since 1993.

“It took four official rate rises in the last 12 months, a further 30bps or so of unofficial rate increases and volatility in fuel prices and asset markets, but it now looks like the Australian consumer is finally putting the credit card down and quietly backing away,” the report stated.

“While the landscape is changing rapidly, we are more of the view that we are heading into a 2005/06 style downturn in spending (eight to 10 months earlier than expected) rather than something more sinister.”

According to the report, anecdotal evidence indicated softening in sales conditions across a range of categories, with an earlier onset than predicted over 2008.

“Consumers are now looking to curtail expenditure in favour of paying down debt, and are also showing an aversion to investments in either equities or property,” according to the report.

Credit Suisse said while they had initially predicted a later bottoming-out of consumer spending, towards the end of this year, recent circumstances meant the retail industry was now in the early stages of the downward trend, but said they also did not predict a long slog, saying “like 2005 we are not anticipating a deep or long downturn based on current expectations.”

Job growth was also expected to slow, below the recent 2.5 per cent average, with the risk of slight unemployment rises.

As a result of all the above factors, the report recommended shares in Woolworths Group, Metcash, Harvey Norman, David Jones and The Reject Shop, among others.