Australia’s national accounts showed soft real GDP growth of 0.8% for the September 2024 quarter.  While household income growth was strong, consumer spending was softer. Year-on-year nominal consumer spending rose 4.1%, or 0.4% in real terms, which is below long-term trends. Households lifted their savings in the September quarter with more than half the tax cuts saved. While spending was soft, the strength of income growth and stored up savings make us positive that retail sales growth will continue improving from here.

Australia’s national accounts showed that retail continued to miss out on spending growth in the June 2024 quarter. Total consumer spending rose 5.2%, while retail spending only increased by 1.8%. Households have continued to use some of their stored-up savings to maintain spending habits. The good news for retail is the reset, or mean reversion lower of retail spending, has now largely played out. We expect improved income growth and a better share of wallet for retail to result in slightly stronger retail sales growth in FY25e.

Australian retail has had a challenging 12 months. We expect we are past the worst for this sales cycle with a gradual improvement in growth over the next 12 months. We forecast retail sales growth of 2.9% in FY25e, up from 1.8% in FY24e. The sectors likely to see the strongest recovery are household goods, supermarkets and online. Some categories are still vulnerable to a correction in volumes such as liquor, cafes & restaurants and fashion. While there is an upswing, it will be mild and leave growth rates below trend for the next three years in our view given the low household savings rate and decelerating population growth.