Profit forecasts for Australia’s largest companies are being slashed at the fastest rate since the COVID-19 pandemic, as aggressive interest rate rises from the Reserve Bank of Australia threaten to push the economy into a downturn. A wave of earnings downgrades, which began in June, intensified through the annual general meeting season in September and October. Market consensus now expects company earnings on the S&P/ASX 200 Index to grow by less than 7 per cent for the current financial year, a significant drop from the nearly 13 per cent growth forecast just four months ago, according to UBS. This sharp deceleration mirrors the period when COVID-19 fears gripped markets in March 2020.
Consumers are increasingly delaying purchases and reining in spending to cope with higher borrowing costs and elevated oil prices. This challenging environment was underscored by recent news that 188-year-old department store chain David Jones faced administration. Just a day earlier, the RBA raised the cash rate to 4.85 per cent, its highest level in 18 years, with Governor Michele Bullock acknowledging that many Australians already feel the economy is in recession. Wesfarmers-owned hardware giant Bunnings, along with JB Hi-Fi and Super Retail, have all reported signs of slowing sales ahead of the crucial Black Friday sales period.
The slowdown extends to the property sector, with recent updates from developers like Stockland, Mirvac, and Cedar Woods Properties indicating a sharp deterioration in residential sales and buyer enquiries. Commonwealth Bank, the country’s biggest home lender, announced it expects Australia’s housing market to experience its largest downturn ever, forecasting price plunges across all capital cities, with Sydney potentially falling 16 per cent. While some bond traders anticipate the RBA has concluded its tightening cycle, leading to a bounce in retail and real estate stocks, equity strategists remain divided. Morgan Stanley, for instance, advises avoiding consumer and housing-linked stocks as the full impact of rate rises is yet to be felt, while others like Ten Cap’s Jun Bei Liu are gradually acquiring resilient consumer stocks, positioning for an eventual RBA pivot.
