Spending on cars, cafes and restaurants in Canberra were all much stronger than expected, according to the Deloitte Access Economics quarterly Retail Forecast, with lower interest rates easing the “noose” around households in the city's mortgage belt.

But despite local retail spending bouncing back from the slump of the two previous years, the territory's economy is facing Commonwealth spending cuts, according to the report, and only modest growth is expected next year.

But optimism for Christmas trading is high among retailers, with big improvements expected over the dismal Decembers of 2010 and last year.

Nationally, the report notes that state-and territory retail economies vary from boom times in Western Australia to recessionary in Tasmania where sales have fallen by nearly 3 per cent.

But retail sales in the ACT have grown by more than 5 per cent in the year to September 30, well above the Australian average and second only to Western Australian, where consumer spending surged by almost 9 per cent in the same period.

“Real retail sales in the ACT have been surprisingly strong, with a solid lift in the September quarter pushing growth over the past year to above 5 per cent,” the report's authors write.

“Falling interest rates appear to have unlocked consumer caution, with the loosening noose around the neck of Canberra's mortgage belt seeing car sales riding high, as well as cafes and restaurants better patronised than has been true for some time.”

But in line with widespread predictions of a harder landing for Canberra's housing and construction sectors than elsewhere in the nation, Deloitte was less bullish about the territory's retailing prospects into the new year.

“The prospects for housing and commercial construction are less strong than elsewhere, while the federal government's budget cutbacks are another headwind to the ACT economy,” the forecasters wrote.

“The outlook for retail in the ACT over the next year is therefore fairly modest.”

The report found that retailers were broadly optimistic about their Christmas prospects with most expecting better times after two tough trading years.

“Despite a tough year, Australian retailers are more optimistic about Christmas sales than a year ago, with over two-thirds, 69 per cent, expecting sales to be higher this season,” the report says.

“Less than 13 per cent of retailers surveyed believe that Christmas sales will be worse than 2011."

Across Australia the retail picture is as fractured as in recession-hit Europe, according to Deloitte.

“They range from recessionary retail conditions in Tasmania, where retail sales have fallen by 2.7 per cent over the past year in real term, to continued boom conditions in WA up 8.9 per cent in real terms over the past year.”