Deloitte Access Economics’ latest issue of Retail Forecasts reports strong growth for the December quarter as end of year events and the holiday season throw the retail sector a lifeline. Year-to December growth in real retail sales is expected to be 2.7%, with prices anticipated to increase by 7.6% and nominal retail sales growing by 10.4%.
Australian retailers have traded relatively well over the past 12 months off the back of the post-pandemic recovery. However, the outlook is fast changing, and retailers are sprinting to Christmas before consumer caution takes hold.
The domestic and global economic environment is souring as inflation and interest rates drive up the cost of living. With a high rate of inflation on many necessities, consumers are finding it hard to avoid the impact on the household budget.
For those with larger mortgages, the many increases in interest rates (the eighth monthly rate rise in a row confirmed today by the Reserve Bank) will greatly raise the cost of servicing home loans, further stretching the cost of living. While the effects of interest rate increases haven’t fully flowed through to consumer spending yet, it seems only a matter of time.
Chart 1: National real and nominal retail turnover
Source: Deloitte Access Economics; Australian Bureau of Statistics 8501.0.
Retailers are growing increasingly pessimistic about the state of the consumer in 2023. Some 58% of respondents to Deloitte Retailers’ Holiday Survey expect that consumer confidence will deteriorate through 2023.
Sales volumes are anticipated to decrease over the first half of 2023 as consumer spending follows the trajectory of consumer confidence. Volumes are expected to fall by 0.2% and 0.4% over the March and June quarters, respectively. With a broad-based reduction in demand expected, few retail categories are anticipated to be spared.
However, improvements in spending are then expected to come through as real wages growth kicks in and interest rates level out. Total retail sales are anticipated to bottom at zero real growth over the year to December 2023, with nominal sales growth at 1.9% at that low point – a more sombre 2023 after the Christmas 2022 sprint.