Australia’s consumer recovery, which began in late 2024, continues into 2025 but at a slow and cautious pace.
According to Westpac’s April Red Book, aggressive US tariff announcements on April 2 —dubbed the Liberation Day tariffs—delivered a “clear ‘jolt’ to sentiment,” delaying what was expected to be a pickup in spending.
“We have trimmed our spending growth forecasts for 2025, from 1.8%yr to 1.5%yr,” said Matthew Hassan (pictured), head of Australian macro-Forecasting, Westpac. “That said, the recovery is being delayed rather than cancelled.”
While Australia’s direct exposure to these tariffs is limited, consumer sentiment remains fragile. Nearly 80% of income gains from 2024’s tax cuts have been saved, not spent.
The Westpac–Melbourne Institute Consumer Sentiment Index declined 2.2% over the three months to April, falling to 90.1. April’s survey responses highlighted a shift from “cautiously” to “firmly” pessimistic sentiment due to the US tariffs.
“Sentiment weakened sharply over the course of the Apr survey week, with steep falls following the ‘reciprocal tariffs’ announced by US President Trump on Apr 2,” Hassan said.
Risk aversion remains elevated, with the Risk Aversion Index at 45.4—more than double its long-run average.
Consumer attitudes towards major purchases have stalled. The “time to buy a major item” index dipped 0.8%, now sitting at 90—still well below its long-term average of 123.
Meanwhile, the CSI± composite index, a reliable proxy for spending trends, dropped 2.8% over the same period, signalling contraction in per capita spend.
Home buyer sentiment lost momentum in early 2025, with the “time to buy a dwelling” index falling 4.7% to 85.7.
“Buyer sentiment is still firmly pessimistic,” Hassan said.
Cyclone Alfred and global economic concerns likely contributed to declines in Queensland and WA.
By contrast, consumer expectations for house prices surged, with the Westpac–Melbourne Institute House Price Expectations Index jumping 14.8% to 153.4.
Expectations for interest rate cuts softened. The Westpac–Melbourne Institute Mortgage Rate Expectations Index fell 7.2% between January and April to 98.1.
“We are more confident of further easing,” Hassan said, suggesting another 25bp cut from RBA in May due to tariff risks and contained inflation.
The fallout from Cyclone Alfred, which hit southeast Queensland in March, created short-term distortions in spending and consumer behaviour.
“Total card activity nationally fell 3.3% over the two weeks to Mar 15,” Hassan said.
Hospitality and food spending in Queensland dropped sharply after the storm.
Although disruptions were significant, insured losses of $1bn are expected to create only minor economic ripples.
Despite weakening sentiment, unemployment fears remain low. The Unemployment Expectations Index improved slightly to 123.9.
“Readings remain consistent with a low risk of labour shedding although recent labour market updates suggest the pace of new hiring is starting to slow,” Hassan said.
WA continued to show volatile swings in sentiment. After peaking in early 2025, confidence again dropped sharply in April, mainly due to the state’s exposure to global trade risks.
Despite this, WA’s 0.9% annual fall in consumption was better than other states, showing relative resilience, Westpac reported.
With the 2025 federal election held on May 3, Westpac’s April Red Book—published prior to polling day—noted that sentiment trends and political outcomes are “more complicated than they might seem.”
“Changes of government have occurred more frequently when sentiment has been high… than when it has been low,” Hassan said, adding that election-related sentiment tends to rebound post-election.
While economic fundamentals are improving, consumers remain wary.
The external volatility—led by the US tariffs—has reinforced a tendency to save rather than spend, even as financial buffers improve
“The mood points to consumers remaining very conservative even as their financial situation improves,” Westpac’s Red Book said.
For more information, access Westpac’s Red Book.
