S&P Global has released an excellent new report, entitled Australian Corporates Vulnerable To A Thrifty Consumer, which warns of the impending household bust:
Australian consumer sentiment is listless. But for Australian corporates it has hardly mattered. A migration boom and consumers’ penchant to live beyond their means have underwritten corporate profitability. However, deteriorating household conditions are beginning to drag down consumer demand. S&P Global Ratings believes Australian companies exposed to greater discretionary expenditure and competition are at greatest risk. Still, companies have financial levers to manage their credit quality, including reducing dividends.
Australian corporates managed to avoid the worst of the mining downturn in 2012 despite households having to contend with stagnant wage growth and cost of living pressures. That’s because consumption remained propped up by population growth and households’ willingness to draw down savings to support living standards.