Retail spending in January fell 0.3 per cent, as the sector felt the impact of the bushfires. Image by Mick Tsikas/AAP PHOTOS

Retail spending stayed weak in January as bushfires devastated many parts of Australia, but the coronavirus outbreak is likely to make a bigger impact.

Days of hazardous smoke pollution across southeastern states kept shoppers at home, but COVID-19 is likely to further weaken consumer confidence, and travel bans will hurt retail spending.

Retail trade fell by 0.3 per cent – or $78 million – in January to $27.3 billion, seasonally adjusted, which was worse than the unchanged result the market was expecting.

The January fall follows a downwardly revised slump of 0.7 per cent in December and yet to reflect the coronavirus panic that set in during February.

January was also the nation’s first back-to-back monthly retail decline since August 2017.

The Australian Bureau of Statistics said the bushfires in January harmed sales in a range of retail businesses across a variety of industries.

“Retailers reported a range of impacts that reduced customer numbers, including interruptions to trading hours and tourism,” analyst Ben James said.

RBC Strategist Su-Lin Ong said even though the bushfires hurt the retail sector, the coronavirus outbreak, which emerged in late January, will make an impact from February onwards.

“Bear in mind that any stockpiling of non-perishable goods, including the infamous toilet paper, is likely to be simply a bringing forward of expenditure,” she said.

Fear, uncertainty, and volatility in key risk assets are unlikely to prompt much expenditure, especially discretionary. Today’s data coupled with another drop in vehicle sales in January suggests that consumption has begun 2020 on a very weak note.”

BIS Oxford Economics chief economist Sarah Hunter expects retail spending to weaken the broader economy as the impact of the coronavirus is fully felt.

“Although the drag from the bushfires has eased as weather conditions have improved, the ban on arrivals from China and other countries will weigh heavily on the sector, she said.

“The latest data and information suggests that the economy is on course for a contraction in Q1, and the risk of a recession has risen significantly – we expect to see further cuts in the cash rate.”

The latest figures were dragged down by a 2.2 per cent fall in department store spending, and 1.1 per cent falls in both the household goods and footwear and personal accessory sectors.

These falls were partially offset by a 0.4 per cent rise in food retailing.

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Bushfires take big toll on January retail