Lower interest rates and tax relief offer hope for a gradual recovery
Retail sales volumes in Q3 2024 fell 0.1% quarter-on-quarter (q/q), slightly better than the anticipated 0.2% decline and the market consensus of a 0.5% drop, according to ANZ Research.
While spending levels remain subdued, this result indicates the prolonged downward trend since late 2021 may be bottoming out.
“The decline in retail trade appears to be arresting, but meaningful recovery is unlikely until 2025 as headwinds persist,” said ANZ chief economist Sharon Zollner (pictured above).
Core sales struggle despite boost in motor vehicles
Core retail sales, excluding fuel and motor vehicles, contracted by 0.8% q/q, reflecting ongoing weakness across much of the sector. However, a 4.3% quarterly rise in motor vehicle sales – an inherently volatile category – propped up the overall figures.
Broadly, 10 of 15 industries saw a decline in the quarter, underscoring the sluggish demand environment.
Sales values also dipped 0.7% q/q, with prices falling 0.6% during the quarter, a measure that suggests disinflationary trends.
“This weak demand underscores the risk of undershooting the 2% inflation target midpoint if spending doesn’t recover,” Zollner said.
Recovery hinges on interest rate relief and economic growth
ANZ expects Q3 to mark the bottom of the cycle, with lower interest rates and income tax relief since July providing much-needed support. However, the recovery will take time, with 40% of mortgages set to reprice in the next six months and another 26% within a year.
“We anticipate gradual recovery as rate relief filters through, but labor market challenges and slowing population growth remain obstacles,” Zollner said.
Weak job prospects and declining net migration are expected to weigh on household confidence. Additionally, international visitor arrivals, which remain 85-90% of pre-COVID levels, are limiting growth in some sectors.
Gradual outlook for 2025
While Q3 data suggests the retail downturn is stabilising, the overall domestic economy remains soft. A meaningful turnaround is likely to emerge in 2025 as economic conditions improve and consumer confidence strengthens.
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