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Retail Forecasts - June 2019

Post-election sugar hit to help retailers

17 June 2019: After a tough end to 2018, retailers faced yet another period of weak demand and declining retail spending over the March quarter of 2019. However, it may not be all doom and gloom for the sector, with some very much needed relief expected in the second half of the year in the form of increased tax offsets.

According to Deloitte Access Economics’ latest quarterly Retail Forecasts subscriber report (Q2 2019):

  • Real retail turnover growth is expected to slow from 2.2% in 2018 to just 1.5% in 2019, before strengthening again in 2020 to 2.9%
  • Despite steady employment growth, household finances have come under pressure from stagnant wage growth and declining wealth, and this has hurt consumer sentiment and weighed on willingness to spend.

Deloitte Access Economics partner and Retail Forecasts principal author, David Rumbens, said: “March quarter retail data confirmed our view that consumers are just not willing to spend as they once were. People are pulling back on spending as household finances remain under pressure from stagnant wage growth and declining wealth.

“But our outlook for 2019 is a tale of two halves, and there is some good news ahead. While the first half of the year is constrained by weak income growth, the latter half will likely receive a boost as monetary and fiscal stimulus work together for the first time in over a decade.

“A deteriorating labour market, inflation below the target range, weak consumption, and falling house prices were enough to prompt monetary easing by the Reserve Bank of Australia for the first time in nearly three years, and lower rates will leave some much needed cash in the pockets of Australia’s highly indebted households.

“In addition, the post-election sugar hit of tax offsets for low and middle earners are likely to boost household incomes in the second half of 2019. Usually tax cuts result in a marginally higher take home pay packet, supporting a gradual and ongoing increase in consumption. The difference this time around is that the tax policy changes will be putting cold hard cash in the hands of consumers once they have lodged their returns.”

Rumbens said that over half of all tax refunds are completed in the September quarter, and just under another 25% in December.

“This bodes well for a surge in spending in the September quarter, rising around 1.3% over the quarter, and provide the boost retailers have been craving.”

The struggling household goods sector, that has been taking a double hit from tepid wage growth and declining house prices, as well as increased competition from the rise of online spending, is expected to receive an immediate boost, as households spend the extra cash on big ticket items.

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