** Citi still sees room for outperformance in Australian retail sector , expecting a strong 1H25 for most retailers, with strength expected to continue into 2H25

** Brokerage now expects uplift of A$70 bln ($43.93 bln), up from A$55 bln, in household spending capacity in fiscal 2025

** Says uplift driven by income growth continuing to surpass expectations; employee compensation grew by ~A$80 bln for 12 months to Sept 2024, surpassing Citi estimates of ~A$52 bln

** Citi expects smaller increase in spending capacity of A$20 bln in fiscal 2026

** Interest rates cuts expected from the middle of the year should further encourage spending, particularly by mortgage constrained households — Citi

** Brokerage prefers JB HI-Fi , Harvey Norman , Super Retail , among others

** Subindex has gained 2% so far this year, underperforming a 3% gain on the benchmark ASX 200 index

($1 = 1.5936 Australian dollars)

(Reporting by Nikita Maria Jino in Bengaluru)

((Nikita.Jino@thomsonreuters.com))