By Andy Young
After a year of solid retail sales growth and strong Christmas trading, retailers have been warned to expect sales growth to slow over the next two years.
The Deloitte Access Economics quarterly retail forecasts predict that inflation-adjusted retail sales will rise by 2.4 per cent in the 2016 fiscal year and by 2.3 per cent in fiscal 2017; that compares to 3.3 per cent in fiscal 2015 and 3.1 per cent in fiscal 2014.
Deloitte partner David Rumbens said in the Retail Forecasts report: "While the solid gains over 2016 were an achievement, early 2016 is producing a turbulent global backdrop, posing challenges for the sector this year.
"Front and centre is slowing growth in China, which has taken a heavy toll on commodity prices, and the end result is that Australia’s national income growth will remain weak. That is bad news for retailers, and the risks of a hard-landing in China are also real which would be even worse news if it eventuated.
"Rising household wealth has been part of the story in keeping retail sales growth ticking over, but future capital flows are becoming less certain. If foreign investor capital retreats from Australia that may put pressure on house prices and, indirectly, on retail.
Rumbens added: "So far the parts of the Australian economy relevant for retail have been fairly resilient with respect to these global trends. For example, employment growth and consumer confidence have been holding up reasonably well. That means that retail sales growth has also been holding up reasonably well. But there are concerns about whether the Australian retail sector can continue to stare down the global challenges. They will likely work through to reduce the rate of retail sales growth through the course of 2016."
The report also highlighted that a lower Australian dollar will also increase the pressure on retailers as it will increase the cost of imports.
However the Reserve Bank’s deputy governor Philip Lowe remains upbeat about Australia’s economic future. Speaking this week at the Urban Development Institute of Australia conference, Lowe said while there has been low wages growth in recent years, this has meant more people have jobs. He added that low interest rates and currency have helped add strength to the Australian economy.
"This is clearly a positive for both aggregate household spending and the broader society," Lowe said.
“The flexibility in these key prices – the exchange rate, interest rates, and wages – has served us well.
"Our central scenario remains for growth in output to be a bit below trend over 2016, but then gradually to strengthen as the drag from lower commodity prices and mining investment wanes, and more of the increased capacity in the LNG sector comes on line.
"Australia's fundamentals remain sound. We have a tremendous base of natural resources, a talented, diverse and growing workforce, a stable political and legal system, a highly regarded university system, and we are well placed to benefit from the increasing demand for services from Asia.