The Westpac–Melbourne Institute Consumer Sentiment Index rose 3.1% between April and July but at 93.1 remains below its March peak and in overall pessimistic territory, according to Westpac’s Red Book July 2025.
“Sentiment has clawed back about half of the shock from the ‘liberation day’ tariff announcements in April,” said Matthew Hassan (pictured), head of Australian macro-forecasting at Westpac. “Detail suggests the RBA’s surprise move to leave rates on hold at its last meeting ‘checked’ what would probably have been a more substantive rise in July.”
Risk aversion is still historically high, with the Westpac Risk Aversion Index at 49.0 in June, compared to a long-run average of 18.
This fragile consumer mood reflects a broader economic slowdown. Westpac’s latest Leading Index shows forward momentum slipping, with six-month annualised growth easing to 0.03% in June, while Roy Morgan highlights rising household stress and subdued spending as a “hidden brake” on recovery.
The CSI± indicator, which correlates closely with per capita spending, posted a rebound from the April tariff-related fall but at 82.3 remains well below the long-run average of 100.
“The latest reading is broadly consistent with a continuation of the modest declines in per capita spend seen over the past year,” Hassan said.
Despite rate cut speculation, consumer mortgage rate expectations have hit a 13-year low, supporting the idea that buyers expect further rate relief.
“The Westpac-Melbourne Institute Mortgage Rate Expectations Index dropped 15% over the last three months to a 13-year low of 83.1,” Hassan said.
Consumer inflation and wage expectations remain benign, sitting slightly above pre-COVID averages but below longer-run levels.
Attitudes toward major purchases are improving slowly. The “time to buy a major item” index rose 8.4% over the three months to July, up nearly 20% year-on-year, but still 20% below its long-run average.
Homebuyer sentiment is thawing gradually.
“The ‘time to buy a dwelling’ index rose 3.3% over the three months to July but at 88.5 is still firmly pessimistic,” the report noted.
Consumers in NSW and Victoria show a slightly better tone, with sentiment closer to neutral.
Meanwhile, house price expectations remain strongly positive.
“The Westpac–Melbourne Institute Consumer House Price Expectations Index rose another 6.1% over the three months to July, briefly touching a 12yr high in June. At 162.8, the index is unambiguously upbeat.”
The Westpac–Melbourne Institute Unemployment Expectations Index deteriorated slightly between April and July, returning to long-run averages.
“Readings are consistent with ‘flat’ labour market conditions rather than more active fears of job loss,” Hassan said.
Westpac now expects the economy to grow just 1.7% in 2025, after 1.3% in 2024, which is well below the 20-year average and points to continued caution for households and borrowers.
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