Wage growth key to retailer outlook

Wage growth key to retailer outlook


National
There may be finally some good news for Australia's beleaguered retail sector.

There may be finally some good news for Australia's beleaguered retail sector.

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There may be finally some good news for Australia's beleaguered retail sector if Reserve Bank governor Philip Lowe is right about a positive outlook for wages growth as a result of a strong labour market.

Dr Lowe told a conference on Wednesday a wage growth rate starting with a three rather than two is both "possible and desirable".

Wage growth is presently close to a two-decade low of 2.1 per cent.

David Rumbens, a partner at Deloitte Access Economics, also expects wage growth to edge higher through the year as the labour market tightens but also concedes there is "still a long road ahead".

"Stronger wages will be excellent news for retail spending, driving a broad-based pick-up in spending power across the workforce," Mr Rumbens says in his latest quarterly Retail Forecasts report released on Thursday.

"Strong population growth also presents good news for the sector but risks remain around slower wealth accumulation, high household debt and increased online disruption."

As such, he expects real or inflation-adjusted retail turnover growth to rise only modestly to 2.6 per cent in 2018/19 from 2.4 per cent in the previous financial year.

Mr Rumbens also welcomed the planned personal income tax cuts in the May federal budget, worth an estimated $13.4 billion over the coming four years, given the weak wage environment.

"For retailers, the sector is likely to be a major beneficiary of the improved household income position," he says.

Still, Australian retailers are under price discounting pressures from overseas competitors and online platforms.

This may be about to change as GST starts to be placed on foreign purchases under $1000 for the first time from July 1.

Global online giant Amazon has already announced it will restrict locals to a smaller range of goods from its recently launched Australian site but Mr Rumbens says other outlets are embracing the change, if reluctantly.

"This may cause some consumer angst in the short-term but overall the policy will support a more level playing field for the retail sector," he says.

Australian Associated Press

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