Retail Forecasts: Rain check?
The tone for consumer spending over the coming year is likely to be set by the balance between increasing ability to spend and shaky confidence.
National Accounts data released today by the Australian Bureau of Statistics (ABS) shows the Australian economy grew by 0.2% in the first quarter of 2025, down from the more robust 0.6% recorded in the December quarter of 2024.
While this quarterly print is similar to the modest growth experienced throughout 2024, Ex-Tropical Cyclone Alfred undercut growth in the March quarter. The ABS noted that extreme weather events reduced domestic final demand and exports, with weather impacts being particularly evident in mining, tourism and shipping. Nonetheless, the March quarter print takes the annual growth rate to 1.3%. This mirrors the annual growth experienced in the December quarter of 2024, indicating that the economic recovery persists, albeit at a more gradual pace.
The economic outlook remains optimistic, supported by lower inflation, reduced interest rates, real wage gains, energy bill relief, increased government spending, and a robust labour market.
Although 2025 was largely anticipated to see better results for consumer spending, so far the recovery has been more modest than spectacular. In part, global trade volatility is getting in the way, fostering uncertainty and impacting consumer confidence, prompting cautious households to restrain spending.
This hesitation is reflected in household consumption figures for the March quarter, which rose a modest 0.4% compared to the revised 0.7% rise experienced in the December quarter 2024. This caution was also evident in consumers forgoing spending while preferencing increasing savings buffers – the household savings rate climbed to 5.2% in March 2025 compared to 3.9% in December 2024. Although consumer confidence dipped amid the global uncertainty, improvements are anticipated as moderating inflation, rate cuts, and cost-of-living relief enhance sentiment.
Retail spending in April was tainted by uncertainty, with seasonally adjusted retail turnover falling 0.1% compared to March. The start of April saw “Liberation Day” tariffs send financial markets into a panic, possibly weighing on consumer spending.
While the volatile tariff situation has sent shockwaves through the global economy, it may not be entirely bad news for Australia. Analysis on the effect of tariffs on Australian trade undertaken by the RBA indicates the impact is likely to be relatively small, with prices rather than volumes likely to see the greatest change.
The broader impact of trade diversions away from the US may well impact retailers here. In particular, Australia is heavily dependent on imports from China and South East Asia to supply clothing and footwear, electronics and furniture, and homewares. Prices are expected to decline for these goods, as excess supply is re-routed to Australia.
With cheaper imports available, the volume of imports for electrical equipment, and clothing and textiles is expected to increase. All of this is to say that Australian consumers may not necessarily be worse off in the short term from the trade disruption – some goods coming into Australia may become cheaper, and the variety of goods may increase.
The latest issue of Retail Forecasts highlights how underlying conditions for retail spending are still trending in a good direction. While the retail recovery momentum appeared hidden during the March quarter of 2025, it has not disappeared. The tone for consumer spending over the coming year is likely to be set by the balance between increasing ability to spend (increasing wages and lower cost of borrowing) and shaky confidence (influenced by tariffs and financial market gyrations).
At least in the shorter term, improving finances are expected to benefit discretionary categories where there may be more price moderation, with non-food categories expected to see real growth of 2.9% in both 2025 and 2026. That compares with food retail sales which may only see real growth of 0.8% in 2025. However, as frugal behaviours gradually subside, food retail spending is then expected to see stronger growth in 2026 (2.5%).
This newsletter was distributed on 4th June 2025. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Amy Kerrigan, Graduate Economist at Deloitte Access Economics
Click on the links below to read our previous Weekly Economic Briefings:
