Deloitte Access Economics Retail Forecasts: the retail recession has arrived

7 June 2023: The retail recession that has been foreshadowed by Retail Forecasts for some time has arrived. Real retail turnover in Australia fell again – by 0.6% over the March 2023 quarter – locking in a retail recession after the 0.3% decline in the December quarter of 2022.

Releasing the latest edition of Deloitte Access Economics’ Retail Forecasts, Deloitte Access Economics partner and principal report author, David Rumbens, said: “This retail recession isn’t a surprise. High inflation and rising interest rates have eroded the purchasing power of consumers and, in response, consumer sentiment is now at historically pessimistic levels.

“We’re also expecting consumer caution to extend further than just goods, with consumers expected to also pull back on services, which could result in a broader based “consumer recession” later this year.”

“However, it’s not expected to be a uniform picture across the retail landscape. Over the past six months food sales in real terms have continued to grow by a healthy 1.7%. Non food retail on the other hand has been in the dog house, with sales volumes falling by 3.7%.

“We’re also seeing consumer bases react differently to the economic environment. Younger people have been disproportionately impacted by the higher cost of living, particularly via rents, and so are curbing spending more than older Australians.

“There are, however, still some silver linings for consumers, with retail price growth starting to ease. Headline inflation over the March quarter was 1..4% while trimmed mean CPI was 1.2%, both much higher than the 0.6% retail price growth.

“In part, the more modest retail price growth comes down to discounting, and particularly apparent in apparel and department stores.

“There’s also some good news for retailers, with expectations of future migration being upgraded to 400,000 in 2022-23 and an expected 315,000 in 2023-24.“The further return of migrants, and especially students coming back for Semester 2, could be the boost needed to get retail sales back to overall growth later in 2023.”

“Our forecasts reflect this. Total real retail turnover is expected to rise from -0.7% across calendar year 2023 to 1.3% in calendar 2024.

“This return to growth would be spurred by more people and also more open wallets. As inflation continues to track down there is expected to be a point in 2024 where real wage growth becomes positive again.

“This would not be a boom – indeed, it’s still below the expected rate of population growth. But it is better than the recent picture of going backwards, and the anticipation of sales growing once again may allow consumer and retailer sentiment to start improving towards the end of 2023.”

National real retail turnover

Source: ABS; Deloitte Access Economics

Retail Forecasts is produced quarterly and provides analysis of current retail spending and the economic drivers that influence this. It includes ten year forecasts of retail sales by major category and of key economic drivers.

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