The slump that has plagued Australia’s struggling retail sector is coming to an end as household confidence improves and consumers look to spend the proceeds from tax cuts.
The slump that has plagued Australia’s retail sector for the past 18 months is coming to an end as retailers prepare for the Christmas holiday season.
Dave Rumbens, partner at Deloitte Access Economics, made the optimistic forecast because real spending has fallen in six of the past seven quarters due to high interest rates, inflation and slowing wage growth.
He said: “We are seeing a significant uptick in searches for ‘sale’ in Google Trends data compared to 2023.
Australians may return to shops in time for Christmas. Picture: NewsWire / Max Mason-Hubers
“This suggests consumers are starting to shift from saving to spending, especially when there are deals available. This shift is likely to continue into November, driven by last week’s Black Friday sales.”
Mr Rumbens called it a “sign of hope” for retailers that have survived two recessions in the past 18 months.
He said the retail recession could soon exceed expectations, with actual retail turnover expected to rise from -0.3% in 2024 to 2.1% in 2025
By 2026, growth will reach 2.6% as “consumers resume their spending habits”.
Official data from the Australian Bureau of Statistics showed that Australia’s economic growth was extremely slow, which was good news for retailers.
Real GDP growth for the full year through September was just 0.8%, the slowest annual growth rate during a pandemic since the 1990s.
Household spending was flat in the September quarter after falling 0.3% in June.
The RBA expects annual growth to rise to 1.5% by the end of this year, so 0.8% annual growth at this stage in the cycle suggests that forecast may be difficult to achieve.
Phase 3 tax cuts could provide a boost to consumers. Photo: NewsWire / Max Mason-Hubers
Actual retail sales in September 2024 were still 1.4% lower than in September 2022.
“Part of the reason is that savings rates have risen since the tax cuts started to trickle down to consumers in July,” he said.
So far this year, the household savings rate has risen to 3.2 per cent in September from 2.4 per cent in June, suggesting Australians are saving their tax cut money.
Despite the unfavorable backdrop, Lumbens said “things are looking up” as consumer confidence has clearly picked up.
“Whenever the RBA cuts rates next year, it’s likely to be the green light consumers need before they feel comfortable spending.”
“But like any good recovery story, there are risks ahead. The uncertain timing of the shift in consumer spending and the ‘discount dilemma’ remain key challenges for retailers,” Mr Rubens said.
Potential changes in trade policy after the new US administration takes office and the impact of the upcoming domestic federal elections may also bring some shocks in 2025.