Consumers seem to have made it clear they’ll give retailers little to cheer about this Christmas, but 2020 could be a different story if house prices continue to soar and wages and jobs growth beat expectations.
A flatlining retail spend – both symptomatic of and contributing to Australia’s sluggish economic growth – is expected to continue over the festive season as confidence sags and debt-laden households bank any recent stimulus windfall instead of hitting the shops.
But a new report by financial services firm Deloitte also says a retail recovery is entirely possible when new year ticks over – so long as property prices continue their upward trajectory, and economic indicators outperform current expectations.
Weak volumes and above-inflation retail price growth have hurt retailers’ margins in 2019 in what is considered to be the softest retail environment since the 1990s recession.
Poor consumption is also keeping the labour market loose and stifling a pickup in wages, even after three RBA rate cuts and billions in government tax offsets have been made to try and get cash flowing through the economy.
However, Deloitte Access Economics partner and Retail Forecasts principal author, David Rumbens, said real retail spending is expected to grow 2.6 per cent over the year to September after slumping by 0.2 per cent over the previous 12 months.
This is contingent on interest rates remaining accommodative – with the RBA tipped to cut to a new record low 0.5 per cent in February – and on a property market continuing to correct an 18-month downturn and hit new peaks in March.
Deloitte said a tightening labour market and a pick up in wages will also be key to any recovery, even though the Reserve Bank is not expecting any joy on either front for some time.
“Stronger wage growth, improvements in the housing market, and stabilisation of price pressures are all expected to support a recovery in consumer demand,” Deloitte’s November Retail Forecasts Summary says.
“The RBA and Federal government are also doing their part to support the economy with further interest rate cuts on the cards and a bring forward of some Commonwealth infrastructure spending.”
A dramatic pick-up in wages would fly in the face of the Reserve Bank’s outlook after it trimmed its long-term forecast in November.
The wage price index was lowered from 2.3 to 2.2 in September, and is now tracking just 2.3 per cent on year average through the forecast horizon, down from a previously forecast 2.4 per cent by June 2021.
There has been no change to the outlook for unemployment out to June 2021 with the rate expected to remain between 5.2 per cent and 5.3 per cent over the next 18 months.
Nonetheless, Deloitte maintains there’s hope on the horizon.
“We expect to see a much-needed improvement in the drivers of spending, providing the environment for a turn around the weak retail demand profile in 2020,” Mr Rumbens said