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Retail Forecasts, November 2013 – Salvaging a tough year


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3 December 2013: 2013 has been a patchy year for retail sales, stepping down on average from the performance registered during 2012.

That’s true for the Australian economy as a whole which continues to work through a difficult transition (from resources project construction as a growth driver to other areas).  Hence overall employment growth is weak, and were it not for an increasing wave of retirements, we would have a more significant unemployment problem.

That subdued economic performance has led to plenty of monetary stimulus – low interest rates and a lower $A than had been seen up until May.  And that stimulus is producing some dividends:

  • house prices are starting to move up more strongly in some capital city markets, particularly Sydney;
  • consumer confidence has been buoyed in recent months by low interest rates and a post election bounce; and
  • there are some signs of improving credit growth.

These more positive signs are coming at the time of the important Christmas sales period.  Deloitte’s Christmas Retailers Survey shows that there is some confidence in the retail sector this Christmas, but it is more the confidence of surviving through it, rather than walking away with a bonanza.  Retailers expect a rise in overall sales but for margins to remain flat.  Australian retailers have also improved their online presence in 2013 which, combined with a lower $A, leaves them in a better position to compete in this fast growth segment.

Overall, the interest rate and exchange rate stimulus benefits to the economy will still take some time to work through, particularly via the transition to additional housing activity.

Australia’s retail sector is likely to end 2013 in better shape than was seen during the middle of the year.  But it still may be Christmas 2014 that brings a smile to retailers’ faces, rather than this year.

Real (inflation-adjusted) retail sales growth is expected to record a gain of 2.2% for calendar 2013, moving up to gains of 2.7% in 2014 (assisted by continued low interest rates), and 3.3% in 2015 (supported by stronger wage gains).

The Northern Territory and Queensland currently lead the way with the strongest retail growth over the past year, supported by major resources construction projects which still have some time to completion.  However, retail growth out of Western Australia is slipping with its relatively greater exposure to minerals rather than gas projects, as mining companies try to reduce costs fast.  

NSW retail has performed better than the national average as surging house prices have some spill over to more retail spending.  Indeed, low interest rates are assisting across the board with all jurisdictions (including Tasmania) enjoying positive retail growth over the past year.  While a slowdown in resources project construction over the next few years will hurt, Western Australia and Queensland should still see the strongest average retail growth over time, supported by better rates of population growth.

See Deloitte media releases and research at www.deloitte.com.au

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