A weakening retail sector is a worrying sign given that household consumption makes up around 56 per cent of GDP in Australia, particularly going into the end of year holiday period, according to the World Bank.

The Australian Food and Grocery Council (AFGC) and CHEP Retail Index revealed year-on-year growth dropped from 3.5 per cent to 2.5 per cent from the June to September quarter, and was likely to continue falling over the coming months.

“The larger-than-expected fall in retail sales growth reflects a number of factors such as moderating jobs growth and record-low wages growth, a long-term deflation in food and grocery retail prices domestically and increasing input costs,” Australian Food and Grocery Council chief executive Gary Dawson said.

“This all adds up to the outlook, while still one of growth, being less robust than the food and grocery sector would like to see especially heading into the December quarter holiday period.”

September year-on-year growth of 1.9 per cent was set to fall to 1.6 per cent in November, according to the index.

“We know through experience that the index is a very accurate lead indicator of retail sales growth. The insights provided by this forecast should help customers prepare for and manage their supply chains more efficiently throughout this period,” president of CHEP Asia Pacific Phillip Austin said.

Weakening retail spending did not appear to be confined to Australia, with a soft patch in consumer spending weighing on retailers in the US going into the end of the year.