Tuesday, April 23, 2024

2024: a tale of two economies

After four consecutive quarters of negative growth, Australia’s retail recession is finally over. However, retailers should not expect hard times to ease quickly, according to the latest Deloitte Access Economics’ Retail Forecast.

“Households are still feeling the brunt of higher interest rates and elevated, albeit moderating, inflation,” says Deloitte Access Economics partner and principal report author, David Rumbens.

“The January retail sales data released last week points to consumer caution. The sector only grew 1.1% in nominal terms over the year to January 2024. This really highlights the weakness of 2023, and the fact that the recovery has not really kicked into gear yet.”

Mr Rumbens says 2023 was “the worst year for retail sales growth in a generation”, and retailers had to offer significant discounts to get customers in the door.

“Retailers have really struggled over the past year,” he says.

“The aggressive discounting in the December quarter drove sales, but heavily ate into margins. Data released this week by the ABS shows that profits in the retail sector are up by just 1.4% over the year – a fall in real terms – with profits particularly falling away at the end of the year, down 10.9% in the December quarter.”

Mr Rumbens says 2024 is expected to be “a tale of two economies”, with the first half seeing a continuation of 2023, where consumers remain cautious and spending subdued. The second half, however, is expected to be a turning point for the Australian economy.

“Real wage growth and disinflation are expected to continue, the updated stage three tax cuts will loosen purse strings, and interest rate cuts are likely.”

According to the report, 2025, is expected to build on the strength of the second half of 2024. Real retail turnover is expected to increase by 0.9% and 2.2% in 2024 and 2025, respectively.

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