Predicting the 2017 Economic Climate

Following another solid retail spending result in the Australian Bureau of Statistics’ 2016 November trade figures, there are good indications the economy is on solid ground leading in this year.

Annual retail sales are running above inflation at around 3.5 percent, although not as strong as historical trends, it is positive as it sees off ructions and uncertainties across the economy. Although we are seeing fluctuations across various retail categories, any data interpretation needs to be analysed in specific periods i.e. quarterly results or year-on-year results. The departure of some major retail player has seen increased price and volume growth, and there is little question that discounting in some sectors is keeping growth at, or below the rate of inflation.  We continue to see retail services flourish with new technologies driving large scale growth throughout the sector via new delivery and service systems.

On a state by state basis, we continue to see an outstanding performance by New South Wales, driven by strong housing demand. This leading state is closely followed by Victoria, Queensland, the Australian Capital Territory, Tasmania and South Australia. Western Australia and the Northern Territory are expectedly trailing as they remain effected by the downturn in mining investment.

While 2016 ended with a series of mixed consumer confidence figures, it appears indexes reflecting disposable consumer income remained quite stable. Wage growth is minimal in the private sector, however a strengthening in government payrolls appears to be keeping wages ahead of inflation. While Government spending is not a long-term solution to wage growth we have seen employment figures remain relatively strong, albeit mainly in part-time work.

The retail industry will see many global challenges and opportunities moving forward, with the caveat on issues such as trade wars being a possible disrupter. We see China and India driving growth as they become increasingly consumer driven and their economies continue to demand our resources and services, whilst providing retailers further trading opportunities through tourism and specialty retail.

This year we could see positive stimulus in some of our older trading partners with changes in the United States economic policy through tax rates, along with similar policies in the United Kingdom, likely exacerbated through Brexit as they break free of the European Union. There is also the potential of significant infrastructure spend in both these international economies given their respective relatively strong economic growth which will put additional demand on our resources and services.

It appears there will be limited growth through economic reform within Australia this year, unless the Government can drive real changes in personal and company tax rates along with greater employment flexibility. There remains the solid argument, given the restraint within wage growth, that the best way to increase consumer spending is to undertake personal tax cuts. Hopefully some of the upside in trade, along with the Government’s very conservative Mid-Year Economic Forecast (MYFO), will allow a new financial year personal tax cut stimulus to be announced during the Federal Budget.


In the Australian context, we are seeing major infrastructure developments along the eastern seaboard driving the economy forward, as both Sydney and Melbourne are undertaking massive decade-long transport and logistic programs. The sums involved in these investments are staggering by Australian and global standards, and the private sector investment which will follow some of these major road, port and rail projects, will further stimulate the broader economy.

One area where Government policy could negatively affect growth is around immigration. One of the key drivers to Australia’s historical growth has been due to population growth and access to specific skills. Many Australian business (including retailers) have already reported growth restraints because of skills requirements and the difficulties to meet those skills needs. With the political scene possibly reducing overall immigration rates, including in those skilled areas, retailers need to be aware of the implications for economic growth and demand if these changes were implemented.

The fact of the matter is – economists have a reputation akin to weather forecasters in getting ‘it’ right. For now, the year is travelling from fair to good, with a diminishing chance of showers.



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