Australians are hitting the shops again but it may be only short lived

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The short term outlook for retailers in Australia is upbeat despite the economy bumping along below trend, according to the latest forecasts by Deloitte Access Economics.

Last year was a healthy one for retailers, the strongest since before the GFC, with sales growth of 3.6% in real terms.

Deloitte Access Economics sees expects inflation adjusted retail sales growth to come in at 3.4% for 2014-15, an improvement on a solid 3.1% in 2013-14.

This financial year may, however, be the peak of the cycle for retail with sales growth in 2015-16 expected to moderate to 2.3%, with housing price growth slowing.

The current growth in spending is despite the fact that Australia’s unemployment rate reached a decade high of 6.4% and wage growth at 2.5% is the weakest it’s ever been.

Deloitte Access Economics says low interest rates, rising asset prices and the willingness of consumers to gradually reduce their rate of savings have been powerful influences in lifting spending.

February’s cut in official interest rates to 2.25% suggests this channel may have some further way to run.

“But relying on cheap credit getting even cheaper is not a sustainable basis for a healthy rate of retail spending, and imbalances are building in Australia’s housing market,” says Deloitte Access Economics.

Cheaper petrol prices have also freed disposable income which can be directed to other forms of spending.

A fall in the price of unleaded petrol of around 26 cents per litre over the past four months is adding around 0.5% to total disposable income.

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