Further potential interest rate cuts could potentially see a healthier retailer environment, according to the latest business outlook report by Deloitte Access Economics.

The Business Outlook: Australia Still in Cost Cutting Mode report shows while it’s difficult to tell if there are any immediate dangers to the inflation outlook, there’s some strength in the retail sector.

“Demand growth is only strong outside suburban malls, and so the strength of Australia’s economy masks modest retail price pressures,” the report said.

It has also predicted while some sectors are slowing, while others are still stuck in the slow lane, such as retailers, there are tentative signs of improvement already. It’s expected interest rates will stay low for a couples years or at least long enough to “ginger up” both the retail and housing construction sector, another struggling industry.

“Retail may look healthier in the next year or two amid an extended period of low interest rates, and that could restore some of its lost pricing power,” the report said.

From a state-by-state perspective, Tasmania is the worst off with its economy struggling and facing a vicious cycle driven by a lack of job gains leading to a lack of retail spending growth. However, Deloitte notes again lower interest rates will help retail “but it may be a long year for Tasmania’s businesses”.

Meanwhile, other states are not so bad with many seeing improved consumer sentiment as a result of lower interest rates. The positivity is reflected by new retail projects, such as Adelaide’s $280 million redevelopment of the Marion Shopping Centre and the $1billion ICON Ipswich CBD renewal project.