Data released today by the ABS confirms that consumer spending in Australia is still very weak, with retail spending remaining flat since the start of 2024. Only ‘other retailing’ recorded any reasonable growth over April 2024, although this was impacted by the very early Easter and timing of school holidays over March and April.

Westpac consumer confidence data confirms that Australian consumers remain extremely despondent. Although Treasury forecasts that income tax cuts and cost of living measures announced in the budget will assist in a recovery in real disposable income over the 2025 financial year, it remains to be seen if this will flow on to increased spending in the retail sector.

Even if real disposable incomes do increase with income tax cuts, and weakening labour market and rising unemployment tends to make Australian consumers uneasy about over-spending, it is likely, then, that Australian consumer confidence will remain weak. A recovery isn’t likely until we see two or three cuts to the cash rate, as only then will mortgage holders start to feel more confident that they have some breathing space in their monthly budget.

Given we are unlikely to see the second or third cut to the cash rate until the final quarter of 2025 financial year, we expect that insolvencies in the retail sector will increase, especially amongst smaller, discretionary retailers. The retail trade sector has already recorded a 35 per cent increase in insolvency rates over the year to April 2024.