Retail recession – the sequel
Australia’s retail sector has effectively been in recession for the last 18 months, says Deloitte Access Economics partner David Rumbens.
The author of Deloitte Access Economics’ Retail Forecast says the ABS June 2024 quarter of retail trade data has effectively marked a return to retail recession conditions – and provides further evidence that the economy remains weak, and the RBA does not need to raise interest rates.
“A retail recession sequel doesn’t necessarily come as a surprise,” he said, noting real retail spending has declined in six of the last seven quarters.
And the numbers only look worse on a per capita basis: real per capita retail spending has contracted for the last eight quarters and is now 2.5% lower than June 2023 and 6.3% lower than June 2022.
“This sits against a backdrop of poor conditions across the economy more generally, with the labour market weakening and business insolvencies rising,” Mr Rumbens said.
“The latest data shows that real GDP growth over the year to March came in at 1.1%, the slowest annual growth seen outside the pandemic since the early 1990s.
Similarly, consumer spending has only grown 1.3% over the past year.
“While these figures are poor, it’s the one-third of consumer spending that goes to retailers that is going backwards, with negative growth of 0.6% in real spending over the year to June.”
Looking ahead
Mr Rumbens says the period from now to Christmas is still expected to be a difficult one for retailers, but perhaps “less of a slog” than it has been.
“As with most horror sequels, the characters are generally more prepared, and the plots generally more predictable,” he said.
“Retailers are getting used to seeing a consumer group which on average is cautious and value conscious, but where some – generally those older and mortgage free – still have money to spend. A tight focus on cost control, and periodic swing to discounting, remains the mantra.”
Going forward, he says, helping to lift retailers out of recession will be the cost of living relief that is being rolled out to households in the form of energy bill relief, and tax cuts which have boosted household disposable income.
“The anticipation of some of these measures has already supported a better retail sales performance through the months of May and June,” Mr Rumbens said. “We anticipate these measures will stimulate higher levels of consumer confidence and stoke consumer spending.”
Real retail turnover growth is expected to strengthen from – 0.3% in 2024 to 1.5% in both 2025 and 2026.
“Stronger real retail sales growth will also be supported by price moderation, as broader inflation tracks down,” Mr Rumbens said.
“Retail prices may move from above normal gains of 4.3% in 2023 and 2.8% in 2024, to more normal price growth rates of 2.6% in 2025 and 2.4% in 2026.”
