Retail Forecasts: A Chill in the Air

National Accounts data released yesterday by the Australian Bureau of Statistics (ABS) indicates that the Australian economy grew by 0.4% in the June quarter 2026. While this marks a gradual easing, annual growth remained solid at 2.1%, near the economy’s estimated "speed limit", signalling that demand has yet to weaken materially.

However, the headline figure does not tell the whole story. Household spending (+0.4%), the key contributor to quarterly growth, was propped up by a one-off sugar hit. Australians rushed out to take advantage of EOFY deals on motor vehicles, with EVs proving particularly attractive due to higher fuel prices.

As confidence has waned, spending more broadly has remained cautious. Without spending on motor vehicles, household spending growth would have been closer to just 0.1% in the quarter, far too weak to suggest households are shrugging off cost-of-living challenges.

According to the latest edition of Deloitte Access Economics’ quarterly Retail Forecasts, ‘A chill in the air’, discretionary spending volumes are forecast to bear the brunt of an anticipated spending slowdown, with growth expected to moderate from 1.9% in 2025-26 to 0.7% in 2026-27. Non-discretionary purchases are also expected to feel some of the spending pinch, with growth in spending volumes expected to decrease from 2.6% to 1.7% over the same period.

Indeed, the economic shadows from the first half of 2026 are starting to loom over Australian retailers, with higher interest rates, a softening labour market, falling real wages and declining house prices creating an unwanted headache for households that will not go away overnight.

Once again, the year is expected to be a tale of two halves, as spending, held up by strong end-of-financial-year discounting, cools over the short to medium term. Growth in real retail turnover is expected to slow from 2.8% in 2025-26 to 1.5% in 2026-27 as tougher economic conditions weigh on household spending.

Notably, this cautious outlook is echoed by retailers in Deloitte’s 2026 Retail Report, which shows that while most retailers (77%) still expect to see nominal sales growth this holiday season, optimism has eased since last year. The share expecting robust 5-10% growth is down by around a third (from 25% to 16%), while the share bracing for an outright decline has nearly doubled (from 8% to 15%).

The impact of the slowdown is expected to vary across retailers. Households are beginning to redirect some of their constrained discretionary spending from larger items towards smaller luxuries and experiences, while spending tied to the housing market is likely to face greater pressure as consumers delay, trade down or pull back on non-essential goods.

Food and smaller discretionary purchases are expected to prove relatively resilient, as the scope for further cutbacks is likely to narrow as household fatigue builds and easier savings are exhausted.

In contrast, spending on apparel and larger purchases is expected to endure a sharp slowdown as consumers become more selective and the housing market softens. This is expected to flow through to department stores and large online retailers, as well as clothing and footwear retailers.

Notably, household goods retailers are expected to be the most affected, with fewer property transactions weighing on purchases of furniture and other big-ticket items. Sales volumes are expected to go backwards, declining by 0.2% in 2026-27 after growing by 5.8% in 2025-26.