Retail turnover in Australia fell by 0.6% in the March quarter, when inflation is stripped out.
This is twice the pace of the downturn in the December 2022 quarter.
David Rumbens of Deloitte Access Economics says “this retail recession isn’t a surprise”, given the impact of rising inflation and interest rates on consumer sentiment.
Rumbens warns that Australia may face a broader-based “consumer recession” later in 2023, amid expectations that consumers will reduce their spending on services as well as goods.
However, Deloitte expects record immigration to help Australia emerge from its retail slump, with net overseas migration of 400,000 this financial year and another 315,000 predicted in 2023-24. Increased numbers of international students might also be beneficial.
Total real retail turnover is predicted by Deloitte to improve from -0.7% in calendar year 2023 to 1.3% in calendar year 2024.
“This return to growth would be spurred by more people and also more open wallets”, Deloitte’s report report said.
“As inflation continues to track down there is expected to be a point in 2024 where real wage growth becomes positive again”.
Australia’s final consumption adjusted for population growth fell by 0.2% in the March quarter, in turn pulling down domestic final demand:
Worse, household consumption is being driven by increased spending on essentials like energy (e.g. gas and electricity), while spending on discretionary items has fallen sharply.
With real incomes falling sharply (see next chart), the outlook for retail sales and overall consumption spending remains poor.
Moreover, with the RBA continuing to hike interest rates, alongside large numbers of fixed rate mortgages resetting to higher variable rates, soon Australian households will be spending a record share of their incomes on mortgage repayments:
For these reasons, The CBA now believes there is a 50% chance that Australia will move from a per capita recession into a full blown technical recession in the second half of 2023.
