Weathering the storm: Navigating economic pain and a potential retail recession in Australia

Queensland’s Retail Sector Hit Hard by Recession

The Australian retail sector is currently experiencing a recession, with the biggest annual contraction in real disposable incomes in 40 years. Experts predict that the services sector will be the next to feel the pinch from the “triple-whammy” of inflation, higher interest rates, and fiscal drags. The retail industry has been hit hard, with retail turnover declining for two consecutive quarters, and Queensland being the worst performer, falling 2.2 per cent for the March quarter compared with the national average of 0.6 per cent.

The Good News

Despite the challenging economic climate, there is good news for Queensland’s retail sector. The shift in consumer spending from retail to travel may see Queensland benefit as a spike in domestic travel is expected. The Commonwealth Bank has also revealed that April’s card spending rose strongly, which may indicate a rise in immigration.

Experts’ Predictions

Wilson Stockbroking predicts that there will be more profit downgrades for the sector, as evidence shows wallet-spend is shifting from apparel and household goods to travel and entertainment. But Deloitte sees a light at the end of the tunnel. It predicts that the further return of immigration, especially students coming back for semester two, could be the boost needed to get retail sales back to overall growth in 2023. Deloitte has tipped retail turnover growth to almost double from 0.7 per cent to 1.3 per cent in 2024.

Westpac’s Response and Predictions

Westpac, however, sees households holding off on big-ticket items while what spending there is appears to be funded by savings that had accumulated during the pandemic. Westpac tagging the state’s economy as “slowing and below trend,” it predicts that the June quarter will likely be the last to show a decline in retail turnover as interest rates are expected to top out soon. Westpac believes that additional rate rises through 2023 would tighten the screws that little bit further.

Advice to Retailers

Retailers need to be aware of the current economic climate and adjust their strategies accordingly. Analysts are recommending that retailers be proactive and redirect their efforts from apparel and household goods to travel and entertainment in order to attract more customers. Deloitte’s warning that interest rates are expected to top out soon should also be taken into account by retailers.

Conclusion

Although the Australian retail sector is currently experiencing a recession, there is room for hope. Immigration, increased travel, and reduced interest rates, along with proactive strategies by retailers, could see retail turnover growth almost double by 2024.