Global trade uncertainties impact consumer confidence

According to the Westpac–Melbourne Institute survey, consumer sentiment decreased 6.0% from 95.9 to 90.1 in early April 2025. The decline was driven by President Trump’s ‘reciprocal tariffs’ announcement and subsequent global financial market sell-offs during the period of the survey in early April 2025, highlighting how quickly consumer sentiment can shift based on personal wealth news.

We think an interest rate cut (maybe in May) will result in a material bounce in sentiment however it may take one of two more cuts before consumer spending responds in a material way. The key for retailers in the coming months will be to manage inventory effectively via targeted promotions until the current uncertainty subsides.

The most recent ABS retail sales data recorded a 0.2% increase in February 2025. The slight increase was driven by food-related sales and increased spending in department stores. February sales were 3.6% higher than February 2024. NAB Online Retail Sales also increased in February 2025 by 1.3%. Online sales growth remains high in year-on-year terms, with seasonally adjusted sales increasing 13.2% between February 2024 and February 2025.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

According to the Westpac–Melbourne Institute Index, sentiment decreased 6% from 95.9 to 90.1 in April 2025. The fall in sentiment was driven by economic uncertainty related to the announcement of ‘reciprocal tariffs’ imposed by US President Trump in early April. Notably, the participants who were surveyed before the announcement recorded a 93.9 sentiment reading– only a slight drop from 95.9 in March– while those surveyed after the announcement recorded an 86.6 sentiment reading; a near 10% drop compared with March 2025.

The sub-indexes all decreased in April 2025:

• ‘family finances vs a year ago’ (-8.5%);

• ‘time to buy a major household item’ (-7.3%);

• ‘family finances next 12mths’ (-6.2%);

• ‘economic conditions next 12mths’ (-5.7%); and

• ‘economic conditions next 5yrs’ (-3.0%).

All subindexes experienced declines as a result of the short-term shock of the tariff announcements during the sentiment survey. With the initial sell-offs now largely unwound, we expect to see a strong rebound in consumer sentiment in May 2025 and even more so if there is an interest rate cut. Looking forward, households appear hopeful that domestic conditions will stabilise over the coming year, supported by the targeted cost-of-living measures announced in the 2025-26 Federal Budget (tax cuts, energy-bill relief, and lower medical expenses) and that interest rates are more likely to go down than up. In the interim we expect a cautious consumer, meaning retailers should focus on managing inventory effectively to position themselves to capitalise on stronger discretionary spending in the end-of-financial-year sales and beyond.

Source: Australian Bureau of Statistics

The most recent ABS retail sales data recorded a 0.2% increase (seasonally adjusted) in February 2025; equating to a c. 3.6% or $1.3bn increase in sales from February 2024. Growth across the month was driven by food-related sales, while non-food related categories experience mixed results as discretionary spending continues to moderate following significant promotional activity in November through January.

Four out of the six sub-categories experienced growth across the month, led by:

• ‘department stores’ (+1.5%)

• ‘food retailing’ (+0.6%)

• ‘clothing, footwear and personal accessory retailing’ (+0.4%)

• ‘cafes, restaurants, and takeaway food services’ (+0.2%)

• ‘household goods retailing’ (-0.3%)

• ‘other retailing’ (-1.0%)

The decline in ‘other retailing’ spending is a reversal of significant growth experienced in January (+2.4%), while growth in ‘department stores’ marks a third consecutive monthly increase for the sub-category. The food-related spending categories remained strong through February, following growth in January. ‘Food retailing’, being the largest of the subcategories, drove overall retail growth across the month with a 0.6% increase.

The ABS Household Spending Indicator (ABS HSI) increased 0.2% in February 2025 (seasonally adjusted) driven by an increase in discretionary spending of 0.3% and a fall in non-discretionary spending of 0.1%. The ABS HSI shows discretionary spending up by 2.7% since February 2024 whereas non-discretionary spending is up by 4.4% indicating cost-of-living pressure is taking up more of consumers’ wallets.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales in February 2025 increased by 1.3%, following a revised increase of 0.2% in January 2025 (previously 0.0%). Growth slowed but remained high in year-on-year terms, with seasonally adjusted sales increasing 13.2% between February 2024 and February 2025. The results by category were mixed, with fashion (+3.1%) rebounding due to some mid-season sales. Online retail sales are estimated to total $61.2 billion and represent 14.0% of retail sales reported by the ABS during the 12 months to February 2025.