Investors in local retailers might be in for a torrid time over the next half year, with consumers hamstrung by rising interest rates, rising petrol prices and rising utility bills.
Speaking at the Crestone Investment Conference in Sydney on Wednesday, UBS' chief economist Scott Haslam pointed to continued disinflationary pressures driven largely by consumer purse-tightening.
"The retail sector has near recessionary conditions in it, especially over the first half of this year," said Mr Haslam.
"Consumers are unlikely to renew their interest any time soon, thanks to rising interest rates, petrol prices and rising utility bills."
The cash flow pressure on domestic consumers has been exacerbated by macro-prudential changes, out-of-cycle interest rate increases and borrowers rolling off interest only loans into principal and interest loans.
Combine this with negative real wage growth and it's unlikely Australians will be snapping up products that aren't crucial anytime soon.
The comments came as major department stores David Jones and Myer started to slash prices on autumn-winter apparel by as much as 50 per cent in an attempt to combat the weakest retail trading in five years.
In addition, figures released by the Reserve Bank of Australia on Wednesday showed the slowest pace of borrowing in three years.
"While Aussie consumers continue to take out loans to buy homes, they continue to slash other debt," said Craig James, chief economist at CommSec.
"In fact, personal credit is falling at the fastest rate for over seven years."
The latest retail sales data from the Australian Bureau of Statistics showed a 0.1 per cent fall in March at the same time as many economists had been tipping a rise.
Compared to a year ago, retail sales rose 2.1 per cent for the slowest rate of annual growth since 2013.
Lack of consumer interest has sparked severe investor retaliation. Shares in Myer have slumped 38 per cent since the start of the year, though Credit Suisse on Wednesday upgraded the company to "neutral".
The bank also raised Super Retail to "neutral" in a signal that it may see the sector as oversold.
The threat of Amazon's arrival has also crushed retail investment sentiment in recent months. Harvey Norman is under particular pressure, down 27 per cent year-to-date, while JB Hi-Fi is off 18 per cent.
Mr Haslam also pointed to the "demise of the oligopoly" in Australia as one of the larger corporate themes adding to the overall negative sentiment clouding the retail sector.
"Australia has some nice industry structure at the moment, with each sector having two or three major players with good return on investment," he said.
"But there are severe competitive pressures looming."