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Predictions for 2016 in retail

Crystal ballIt is a lot more difficult to predict the retail climate in 2016 compared to a year ago for reasons stated below. As usual I will compare these predictions to what really happened when we reach December 2016.

My guess is that they may be somewhat less accurate than they were for 2015. Remember too that the GFC is said to have started in July 2007 while it took a little longer to bite. The prognosis at that time was that it would take 10 years for the world economy to recover so we still have a way to go.

Oil price
Currently oil is trading at just under USD34 a barrel. Last year this time it was USD55 a barrel. A whopping decrease of 38 per cent. The prediction is that it may fall to USD28 soonish. Of the 43 countries producing oil of any consequence, Kuwait has the lowest operating cost per barrel at USD4.4 (Recent Development and Prospects of WEO Oct 2015 Chapter 1) but USD 10 per barrel is more realistic.

Predictions for 2016 suggest that oil will trade at USD45 – USD50 per barrel during 2016. Let’s say an increase of about 50 per cent compared to the current price. This would suggest that we will see a steady increase in the cost of petrol this year which will impact negatively on disposable retail dollars.

AUD
Taking various factors into account including commodity prices, US interest rates and the CNY, it is likely that the AUD will hover in the late 60’s during at least part of 2016. Good for exports and tourism, but for retail this generally means higher prices.

Interest rates
The RBA will probably adopt a cautious approach and interest rates will stay more or less where they are with possible increases towards the end of the year. Hard to call because of the uncertainty of the US rates.

Terror
A horrible topic but realistically we have to expect a worldwide increase in 2016, including for Australia. Apart from this prediction, it is impossible to call when there are people who are prepared to blow themselves up.

GST
It is not a question of “if” anymore but rather “when” and what will be excluded and what will be included and whether it will be 12.5 per cent or 15 per cent. If it is going to increase before the election (probably January 2017), then it will increase soon. My prediction is that it will increase before the election.

LVIT
Quite frankly I have lost the plot and researching this has not helped. Is it going to be reduced and when? I think it will be reduced or scrapped in 2016.

In summary, what effect will the above have on retail in 2016?

  • The oil price will probably stay ‘low’ for 2016 and the dollars saved by households will benefit retailers.
  • The AUD will probably hover in the early 70’s for most of the year and imports will be more expensive.
  • Interest rates will remain ‘low’.
  • Terrorism is impossible to predict but will escalate.
  • The GST could rise before January 2017. If and when it does, there will be a flurry of spending depending on how much notice we get.
  • The LVIT will drop but will have no material effect on retailers in Australia because the GST pales into insignificance compared to overseas online prices.

Stuart Bennie is a retail consultant at Impact Retailing and can be contacted at stuart@impactretailing.com.au or 0414 631 702.

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