Retail Forecasts - August 2019
Looking for a turning point
18 September 2019: Retailers continue to operate in a highly challenging environment. While retail spending improved over the June quarter, annual growth and operating conditions are at their weakest since the early 1990’s recession. On a positive note, tax cuts and rate cuts have been delivered, and retailers are waiting for their share.
According to Deloitte Access Economics’ latest quarterly Retail Forecasts subscriber report (Q3 2019):
- The annual rate of sales volumes growth has steadily declined since the beginning on 2018, and 2018-19 recorded the weakest result since the early 90’s recession.
- In part, sales volumes have been eroded by rising prices – the drought and the falling $A have conspired to deliver the fastest rate of retail inflation we have seen in a decade.
- Real retail turnover growth is expected to improve from 1.3% in 2018-19 to 2.2% in 2019-20 as Australians receive their tax returns and expansionary monetary policy begins to take effect.
Retail sales improved marginally over the June quarter, but conditions remain challenging for retailers. The annual rate of turnover continued to decelerate as households struggle with tepid wage growth and rising costs.
While retail sales growth has dropped sharply in volume terms, in dollar terms the fall is more moderate. The difference is retail inflation, which is now increasing at its fastest rate in a decade. This is largely coming through food retailing, with the drought pushing up supply prices, and these price rises transmitting through to customers. A lower $A pushing up import prices is also a culprit.
However, it looks like sales volumes may have reached a turning point. Retail spending is expected to pick up as tax offset and rate cuts support spending activity, and Sydney and Melbourne housing markets seem to have increased interest as a result. With price growth also expected to moderate, there will be more room for rising sales volumes.
Unfortunately the pick up in spending is likely to be a one-off lift as the boost tax refunds and lower repayment costs fade. Instead, it is stronger wage and jobs growth that is needed to turn any improvement into a sustainable lift for retail.