Australian consumer confidence has reached its highest level in three years following the Reserve Bank of Australia (RBA) decision to cut interest rates in February 2025.
The latest Westpac–Melbourne Institute Consumer Sentiment Index recorded a 4% increase in March, rising from 92.2 to 95.9, marking the strongest level since May 2022, just before the RBA began its cycle of interest rate hikes.
According to 9News, this shift in sentiment comes after a prolonged period of economic uncertainty, during which households faced rising borrowing costs and high inflation.
Despite this improvement, the index remains four points below the neutral level of 100, indicating that while confidence is improving, some caution persists among consumers.
The latest data reflects a changing economic landscape, with potential implications for spending habits, employment expectations, and future monetary policy decisions.
Consumer Sentiment Recovers After Prolonged Decline
The increase in confidence marks a shift after what Westpac’s head of Australian macro-forecasting, Matthew Hassan, described as the
longest and deepest period of pessimism since the survey began in the mid-1970s.
The sentiment turnaround follows the first rate cut in more than four years, which has provided some relief to households after a prolonged period of rising borrowing costs.
Hassan attributed the improvement to multiple factors, stating,
The RBA’s decision to cut interest rates in February and a further easing in cost-of-living pressures have provided a clear lift.
The recent increase in consumer confidence aligns with economic data showing that household consumption rose by 0.4% in the final quarter of 2024, reversing two consecutive quarters of decline.
Analysts suggest that lower interest rates have begun to encourage spending, particularly on major household items, as Australians regain confidence in their financial stability.
Household Spending Shows Signs of Recovery
The interest rate reduction has increased purchasing power, leading to a notable shift in consumer behaviour. After delaying major purchases for several years, Australians have begun spending on significant household items, taking advantage of improved financial conditions.
Hassan noted that
Around family finances, the picture continues to be of a slow improvement but with rising optimism about the year ahead.
The increased spending, combined with expectations of potential future rate cuts, suggests that the economic recovery may continue in the coming months.
Additionally, confidence in the labour market appears to be improving, with Hassan stating,
Consumers are becoming more positive on the labour market, expectations suggesting a ‘soft landing’ has already been achieved
However, economists caution that sustained improvements will depend on continued stability in inflation and further wage growth.
Global Uncertainty Remains a Concern
Despite improvements in domestic economic conditions, concerns about global economic stability remain. The survey found that 82% of Australian consumers perceive international economic conditions as negative, with many expressing concerns about the impact of US trade policies and tariff tensions.
Hassan highlighted this divergence, noting,
Responses in March show that while consumers detected a marked improvement in the domestic news flow, the news from abroad has become more troubling.
Uncertainty surrounding global market volatility continues to affect consumer confidence, as external factors such as inflationary pressures, exchange rate fluctuations, and trade negotiations remain unpredictable.
