Retail industry in a ‘recession sequel’, says Deloitte
The big four firm says the retail industry continues to suffer from weak economic conditions but may see improvement in 2025.
Retail recession conditions have been “marked to return” based on the recent release of June 2024 quarter results of retail trade data from the Australian Bureau of Statistics, which Deloitte said indicated a weak economy.
Deloitte has released the latest edition of Deloitte Access Economics’ Retail Forecasts which highlighted sufficient evidence of a retail recession, feeble economic conditions, and a sign for the Reserve Bank of Australia to not raise interest rates.
The big four company has forecast for the retail recession to continue over the rest of the income year.
However, as retailers are experienced in the current economic climate, they will be more prepared and will benefit in 2025 to 2026.
Deloitte Access Economics partner and report author David Rumbens said the evidence shows that Australia’s retail sector has effectively been in recession for the last 18 months.
“A retail recession sequel doesn’t necessarily come as a surprise,” he said.
“In six of the seven last quarters, real retail spending has declined and the numbers only look worse on a per capita basis.”
According to the report and data, real per capita retail spending has contracted for the last eight quarters and is now 2.5 per cent lower than June 2023 and 6.3 per cent lower than June 2022.
The decreased retail spending “sits against a backdrop” of poor conditions across the whole economy as the labour market has also weakened and business insolvencies have continued to rise.
Rumbens said real GDP growth has also been measured at a record low.
“The latest data shows that real GDP growth over the year to March came in at 1.1 per cent, the slowest annual growth seen outside the pandemic since the early 1990s,” Rumbens said.
“Similarly, consumer spending has only grown 1.3 per cent over the past year.
“While these figures are poor, it’s the one-third of consumer spending that goes to retailers that is going backwards, with negative growth of 0.6 per cent in real spending over the year to June.”
Based on the current poor economic conditions, Deloitte has predicted the period from now until Christmas will be difficult for retailers.
Despite the period being difficult, Deloitte said it will be “less of a slog” as retailers will be more prepared and will be able to predict the movements of the market.
“Retailers are getting used to seeing a consumer group which on average is cautious and value conscious, but where some who are older and mortgage-free still have money to spend,” Rumbens said.
“A tight focus on cost control and periodic swing to discounting remains the mantra.
“Technology investment is being further explored to drive efficiencies, with retailers’ hiring intentions dropping back.”
The cost-of-living relief rolled out to households in the form of energy bill relief, tax cuts and boosted disposable income will help lift retailers out of recession, according to the Retail Forecasts report.
Deloitte said some of these measures have already supported a better retail sales performance through the months of May and June.
Rumbens added it is anticipated these measures will stimulate high levels of consumer confidence and stoke consumer spending.
“As a result, ‘retail recession – the sequel’ is expected to be short and shallow,” he said.
“Real retail turnover growth is expected to strengthen from 0.3 per cent in 2024 to 1.5 per cent in both 2025 and 2026.”
Further improvement and a return to more solid growth are expected to show in 2025 to 2026.
According to Rumbens, retail prices may move above normal gains of 4.3 per cent in 2023 and 2.8 per cent in 2024, to more normal price growth rates of 2.6 per cent in 2025 and 2.4 per cent in 2026.
“Stronger real retail sales growth will also be supported by price moderation, as broader inflation tracks down.”
