retail forecasts bowser boost

Media releases

Retail Forecasts

Bowser boost

18 March 2015: 2014 was a healthy year for retailers with through the year retail sales growth of 3.6% in real terms and 4.9% in nominal terms. Indeed, 2014 was the strongest year for retailers since prior to the GFC.

This growth in retail spending occurred despite the fact that Australia’s unemployment rate has recently reached a decade high, and real wage growth remains painfully weak. Instead, low interest rates, rising asset prices, and the willingness of consumers to gradually reduce their rate of savings have been powerful influences in lifting spending.

February’s interest rate cut from the RBA suggests this channel may have some further way to run. But relying on cheap credit getting even cheaper is not a sustainable basis for a healthy rate of retail spending, and imbalances are building in Australia’s housing market.

Recent months have also brought another boost for retailers in the form of much cheaper petrol prices freeing up disposable income which can be directed to other forms of spending. A fall in the price of unleaded petrol of around 26 cents per litre over the past four months is adding around 0.5% to total disposable income. That is a significant boost, particularly when you consider that in the wake of last year’s Federal budget there was considerable concern raised about the impact on consumers of the reintroduction of fuel excise indexation. That measure will add around 1 cent to the price of fuel in its first year, which pales into comparison with the recent fall in petrol prices.

The fall in petrol prices leaves households with more to spend on other goods and services. As a highly visible price, it is also likely to be supportive of broader consumer sentiment. The surge in consumer sentiment in February (which was partly reversed in March) can at least partly be attributed to the fall in petrol prices.

Hence the short term outlook remains good for retail, support by rate cuts and the bowser boost, even though the broader economy continues to move along at a sub-trend pace. But given the nature of the current key supports, we may see retail sales moving to a slower growth rate by the end of 2015.

Overall, real (inflation-adjusted) retail sales growth is expected to come in at 3.4% for 2014-15, an improvement on a very solid 3.1% in 2013-14. The 2014-15 financial year may however be the peak of the cycle for retail, with sales growth in 2015-16 expected to moderate to 2.3%, with housing price growth and transactions slowing.

New South Wales and Victoria are punching well above their (considerable) population weights when it comes to retail spending performance at present. Retailers are enjoying very buoyant conditions in these markets, particularly over the second half of 2014. Indeed the healthy national real retail growth rate of 3.6% over the past year is overwhelming driven by our largest two States – retail growth seen in the rest of Australia over the past year was just 0.9%.

These numbers do highlight the economic pain coming through in resources States as the mining investment boom winds down. The key stimulus to ward off that downturn (low interest rates) is gaining traction where it might least be needed, pumping up Sydney and Melbourne house prices, and encouraging more borrowing and spending as a result. The recent decline in the $A may distribute economic benefits more broadly, so it is likely the NSW-Victoria dominance story will fade over the course of 2015.

For further information on subscription publications issued by Deloitte Access Economics:

Kellie Chalker-Hall

Manager, Marketing & Subscriptions
T: +61 2 6175 2000
Email

About Deloitte Access Economics

Deloitte Access Economics is Australia’s pre-eminent economics advisory practice and a member of Deloitte's global economics group. For more information about publications, please visit www.deloitteaccesseconomics.com.au.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence.

About Deloitte Australia

In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australia’s leading professional services firms, and winner of both the Australian Financial Review/CFO Audit Firm of the Year and Accounting Firm of the Year awards 2013, Deloitte Touche Tohmatsu and its affiliates provide audit, tax, consulting, and financial advisory services through approximately 6,000 people across the country. Focused on the creation of value and growth, and known as an employer of choice for innovative human resources programs, we are dedicated to helping our clients and our people excel. Formore information, please visit Deloitte’s web site at www.deloitte.com.au.

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu Limited
© 2015 Deloitte Touche Tohmatsu

Did you find this useful?