Discretionary spending growth is forecast to fall by more than half, with many retail sectors to face the impacts of emptier wallets, and food and smaller discretionary purchases the only categories expected to recover.
Following the geopolitical events that rocked the Australian economy in the first half of this year, one expert has said that these impacts are beginning to materialise for Australian households.
According to the latest quarterly forecasts by Deloitte Access Economics, real retail turnover growth is expected to fall from 2.8 per cent in 2025–26 to 1.5 per cent in 2026–27, with discretionary spending taking a hit from current economic conditions.
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The firm’s retail forecasts predict that the household goods category will be the most affected, with the decrease in property transactions impacting furniture and large household purchases, and growth in this category projected to fall from 5.8 per cent in 2025–26 to a 0.2 per cent decline in 2026–27.
Overall, Deloitte expects discretionary spending growth to slow from 1.9 per cent in 2025–26 to 0.7 per cent in 2026–27, while non-discretionary spending growth is also forecast to fall from 2.6 per cent to 1.7 per cent in the same period.
Deloitte Access Economics partner David Rumbens said: “Domestic price pressures and higher energy costs due to the conflict in the Middle East mean inflation is still running too hot. Despite three consecutive interest rate hikes in the first half of this year, the RBA does not expect inflation to return to target until mid-2027.”
“The effects are starting to show for households. Unemployment rose to 4.5 per cent in July, while the rising cost of living outpaced wage growth and real wages fell 0.7 per cent over the year to June. Rising mortgage costs and the Federal Budget’s tax changes are also causing house prices to soften,” Rumbens said.
“The slowdown will not be felt evenly across retail categories. Households are beginning to redirect some of their constrained discretionary spending from larger items towards smaller luxuries and experiences, while categories tied to the housing market are likely to face greater pressure as consumers delay, trade down or pull back on non-essential spending.”
This is reflected in Deloitte’s forecasts: despite the projected fall in spending overall, food and smaller discretionary purchases are projected to recover from a 0.1 per cent decline in 2025–26 to 1.6 per cent growth in 2026–27.
Despite this, growth in cafes, restaurants and takeaway food services is expected to fall from 3.5 per cent to 1.6 per cent in the same period, Deloitte said.
With this recovery in food and smaller discretionary purchases, larger discretionary categories, however, are set to face a sharper slowdown as the housing market softens and consumers become more selective.
As a result, growth in department stores and large online retailers is expected to fall from 2.2 per cent in 2025–26 to 1.1 per cent in 2026–27, and clothing and footwear growth is forecast to fall from 1.7 per cent to 0.1 per cent, Deloitte said.
“Looking ahead, household spending is expected to moderate in the September quarter as mid-year discounts unwind, cost-of-living pressures build and the recent softening in house prices feeds through to consumer spending decisions,” Rumbens said.
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