Australian Households Endure Prolonged Recession: A Financial Overview

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The economic downturn has been marked by an 8% decrease in real per capita household consumption from its peak in mid-2022. This regression in spending power follows a more pronounced decline in household incomes. Comparative data from the OECD also positions Australian households as experiencing the most significant consumption downturn amongst advanced economies since Q4 2019.

The downturn persists despite the introduction of the Stage 3 tax cuts on 1 July 2024 and the Reserve Bank of Australia's (RBA) February 0.25% interest rate reduction. These measures were anticipated to invigorate consumer demand, but recent retail sales figures from the ABS for February indicate otherwise. Retails sales, although having seen growth at the end of 2024, have now decelerated and are marginally below November 2022 levels.

Alex Joiner from IFM Investors highlights this decline, noting February saw a drop in nominal retail sales per capita following ten months of growth. The Commonwealth Bank of Australia (CBA) reflects on this cautious consumer behavior, pointing out that, while households have greater spending capacity due to tax cuts and increasing real incomes, spending remains selective, often hinging on sales and discounts events, and tends towards savings.

These recent sales figures reinforce the perspective that current interest rates may be overly restrictive. The prevailing economic sentiment indicates that while the RBA maintained a pause on interest rates, economists widely predict a rate cut anticipated in mid-May, contingent on the Q1 Consumer Price Index (CPI) results due later this month.

Published:Wednesday, 2nd Apr 2025
Source: Paige Estritori

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