Green shoots are showing in the Australian economy, but retailers are set for further pain in 2024

Australian consumers and workers may benefit from improved economic conditions in 2024, yet retailers can expect current hardships to continue, according to new forecasts published by Deloitte Access Economics.

The agency’s quarterly outlook, published Tuesday, suggests there are green shoots sprouting after 12 months defined by significant inflation and interest rate hikes.

Its forecasts suggest the headline Consumer Price Index (CPI), which rose 6% in the 12 months to the June quarter, “may moderate to 4.0% over the year to December 2023” and fall back into the Reserve Bank of Australia’s target band of between 2% and 3%.

According to Deloitte, the causes of that decline are twofold: supply-side disruptions to key resources, stoked by the lingering pandemic restrictions and international conflict alike, have been mediated.

At the same time, consecutive interest rate hikes, executed by the RBA to constrain domestic demand, have had their intended effect.

Arresting runaway prices could even lead to real wage growth, where take-home pay actually beats inflation, providing workers with tangible economic benefits.

The failure of real wage growth in recent years “is the cost-of-living crisis in a nutshell”, the report states, adding, “while it may be modest, wage growth is now expected to exceed price growth on a quarterly basis going forward”.

Those economic upsides may even be reflected in gross domestic product (GDP) readings, with Deloitte suggesting Australia may have done just enough to avoid an out-and-out recession.

“Retail recession – yep. Per capita recession – yep,” the paper says, using casual language to refer to consecutive quarters of negative retail trade growth, and the way increasing population growth has shrouded some measures of economic expansion.

“But as tough as it’s been, it looks like we might get through the year without tipping into an actual recession.”

Retailers facing continued uncertainty

Despite all of that, Deloitte Access Economics says retailers, many of which are small businesses, are likely to face economic headwinds well into the new year.

The retail trade sector is set to shrink by 1% over the year, the report says, while wholesale trade is expected to decline 1.4%, the most of any industry category assessed.

A shift from goods inflation to services inflation — think increasing rents, utilities, and health care services — has depleted many shoppers’ savings, eating away at the household budget for discretionary purchases.

“In this environment, the retail recession continues, driven by consumer caution and sensitivity to prices,” the Deloitte paper states.

“Retail turnover has now declined in real terms for the last three quarters.

“Retailers remain optimistic about the holiday period, but it’s uncertain what is to come.”

To make the most of the opportunities in a fragile but hopeful economic landscape, businesses across the spectrum should not shy away from investment, says Deloitte.

“There is a risk that the current economic malaise sends businesses into a cost cutting mode.

“But it is vital that businesses do not cut costs at the expense of taking advantage of growth opportunities coming in 2024.”

Looking even more broadly, the paper suggests the transition to net zero will open further growth and innovation opportunities.

And generative artificial intelligence, the topic du jour, also warrants a mention.

“Generative AI may be a productivity panacea – we do need one,” the paper states.