A recession gripping Australia’s struggling retail sector is tipped to end – as household confidence grows and consumers look to spend their tax cuts.
A recession that has gripped Australia’s retail sector for the past 18 months is tipped to end, as retailers brace for a bumper Christmas holiday period.
The upbeat forecast by Deloitte Access Economics partner Dave Rumbens follows real spending declining across six of the last seven quarters as households struggle with higher interest rates, inflation and slowing wage growth.
“We’ve seen this in a much earlier uplift in searches for ‘sales’ in Google trends data compared to 2023,” he said.
Australians are likely to return to the shops this Christmas period. Picture: NewsWire / Max Mason-Hubers
“This suggests that consumers are starting to shift from saving to spending, especially when there are good deals on offer. This shift has likely continued into November, off the back of saturated Black Friday campaigns last week.”
Mr Rumbens called it a “sign of hope” after retailers braved two recessions over the 18-month period.
He said the retail recession could soon be over forecasting real retail turnover is expected to lift from -0.3 per cent in calendar year 2024 to 2.1 per cent in 2025 and
2.6 per cent in 2026, “as consumers get their spending groove back on”.
The welcome news for retailers comes as official figures from the ABS shows the incredibly slow growth in the Australian economy.
Real GDP growth over the year to September came in just 0.8 per cent, the slowest annual growth outside the pandemic since the 1990s.
Household spending was flat in the September quarter following a fall of 0.3 per cent in June.
The RBA was expecting annual growth to pick up to 1.5 per cent by the end of this year, so annual growth of 0.8 per cent at this stage in the cycle suggests that forecast may be difficult to achieve.
Stage three tax cuts will likely spur on customers. Picture: NewsWire / Max Mason-Hubers
Real retail turnover was still a full 1.4 per cent lower in September 2024 compared to September 2022.
“Part of the story has been an uptick in savings since tax cuts started making their way to consumers in July,” he said.
So far the household saving ratio ticked up from 2.4 per cent in June to 3.2 per cent in September as well, suggesting Aussies were saving their tax cuts.
Despite a negative backdrop, Mr Rumbens said the “tide is turning” with a notable uplift in consumer sentiment.
“A rate cut from the RBA, whenever that might be next year, could be the green ‘go’ light consumers need to see before feeling comfortable letting loose.”
“But like any good recovery story, there are also risks in the road ahead. Uncertain timing for the shift in consumer spending and the ‘discount dilemma’ remains crucial challenges for retailers,” Mr Rumbens said.
The impacts of potential trade policy changes from a new administration in the US and the upcoming domestic federal election may also introduce some bumps in 2025.