Australian retailers are facing their worst two-month period since 2010, and panic buying probably won't save them

• Australian retail spending fell 0.3% in January, after a 0.7% decline in December.

• It marks the worst two months for the sector stretching back to October 2010.

• While panic buying may offset some decline, as coronavirus fears take hold, economists expect fear and uncertainty to see the sector battered even more in the short-term.

• Visit Business Insider Australia’s homepage for more stories.

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More bad news from the economic frontlines.

Australia's retail sector has just had its two worst months in almost a decade, as the country continues to reel from a weak economy exacerbated by uncorrelated crises.

"Retail turnover fell a further 0.3% in January, following a 0.7% decline in December, as the sector struggles to overcome the impact of Australia’s unprecedented bushfire season," Indeed Asia-Pacific economist Callam Pickering said in a note issued to Business Insider Australia.

The figures confirmed the Black Friday sales, which managed to entice Australians to finally spend, only pushed forward retail spending into November, leaving the December and January months to wither on the vine – their worst since 2010. In fact, when you factor in discounting, sales events have likely left retailers worse off than in previous years.

Take New South Wales, where spending has declined 0.3% over the last 12 months, its "weakest annual outcome in almost eight years", according to Pickering.

"Growth is also below 2% in South Australia and Western Australia. Queensland has, by far, the strongest retail sector right now, with annual growth of 4.9%," he noted.

While retailers have been under pressure for quite some time, the combined threat of bushfires, showing up in this month's results, and coronavirus, likely to hurt in coming months, means the sector looks to get worse before it gets better.

"Forecasting the impact of coronavirus is naturally difficult and at least so far the number of confirmed cases in Australia is relatively low. But disruptions to supply chains are likely to reduce the amount of available stock for a range of goods, while households are likely to pull back on everything but the necessities," Pickering said. "Reduced tourism will also hurt, particularly in areas such as south-east Queensland."

Concerns over the supply of essential items has helped drive shortages and spike demand but a spate of so-called 'panic buying' won't be enough to save the sector.

"It’s possible that panic buying boosted food, pharmaceutical and toiletry sales, but we estimate that they account for just 14% of consumption," Capital Economics ANZ economist Marcel Thieliant said in a separate note.

Given the limitations of such an uptick, the January results only increase the likelihood the Australia economy will decline this quarter and slink closer a recession.

"The probability of a contraction in GDP over the first quarter just inched higher, particularly given January retail data precedes the impact of COVID‑19 on the Australian economy," CBA senior economist Gareth Aird said.

"Forthcoming fiscal stimulus will hopefully cushion the blow for retailers, particularly small businesses where cash flow may be challenging over the next six months."

The details of that stimulus package are still unclear at this stage, however, with the package needing to give both businesses and consumers confidence if it's going to arrest the decline.

"Retail trends are likely to be highly volatile in the coming months due to the impact of coronavirus – both on the upside [eg.] ‘panic buying’ – and the downside – widespread quarantines and fear of public places," Pickering said.

"Uncertainty and fear are rarely a good combination. They certainly aren’t good for economic growth," he added. "The degree of uncertainty across the Australian economy is at its highest level since the height of the global financial crisis."