Australia’s Consumer Sentiment Softens in June as Outlook Weakens

10 June

Australia’s consumer confidence posted a marginal gain in June 2025, signaling a sharp slowdown in momentum amid global trade uncertainty and residual household financial strain. The Westpac-Melbourne Institute Consumer Sentiment Index rose by just 0.5% month-over-month to 92.6, down from a 2.2% increase in May, reinforcing concerns that Australian households remain hesitant in committing to major spending or long-term financial planning.

Despite being the fourth monthly increase in 2025, the index remains well below the neutral benchmark of 100, suggesting that the Australian consumer remains broadly pessimistic. With rising unemployment expectations and declining long-term outlooks, the latest data paints a picture of a population cautiously navigating post-inflationary recovery.

Sub-Index Breakdown: Household Confidence Under Pressure

While the overall index ticked up slightly, the composition of sentiment metrics reveals deteriorating forward-looking indicators:

    
        Sub-Index
        June 2025 Value
        MoM Change
        Implication 
        
        Family Finances (Past Year)
        75.4
        0.50%
        Slight improvement, but deeply negative 
        
        Family Finances (Next 12 Months)
        98.8
        –1.9%
        Downward shift back into pessimistic territory 
        
        Economic Conditions (Next 12 Months)
        92.4
        –0.7%
        First decline since February 
        
        Economic Conditions (Next 5 Years)
        96.2
        –2.4%
        Clear loss of long-run optimism 
        
        Time to Buy a Major Household Item
        100.2
        7.50%
        Surged into optimistic territory for the first time since October 2023 
        
        Unemployment Expectations Index
        127.4
        5.00%
        Significant rise, though still below long-run average (129)

Despite rate cuts from the Reserve Bank of Australia (RBA) and easing inflation, most Australians continue to express “cautious pessimism,” as described by Mathew Hassan, Head of Australian Macro-Forecasting at Westpac. According to Hassan, consumers are caught in a “holding pattern”, awaiting more convincing signals before reengaging with the economy.

Historical Context: Below Long-Term Averages

The long-run average of the headline sentiment index is around 101.5. The current value of 92.6 places the index at a level consistent with past periods of economic softness—such as during the early COVID recovery (2021) and post-GFC periods (2009–2010). In contrast to the more resilient business confidence data, consumers are clearly feeling the pinch of elevated living costs, especially as real wages remain only marginally positive (+0.4% YoY).

Inflation has eased, with the CPI dropping to 3.2% YoY in May 2025, but consumers have yet to feel the benefits in discretionary spending capacity.

Drivers of Sentiment Movement

1. Reserve Bank Rate Cut Effect

The RBA’s 25bps cut in May—bringing the policy rate to 3.60%—was expected to boost confidence. However, the impact appears uneven. While the ‘Time to Buy a Major Household Item’ sub-index rose 7.5% to 100.2, reflecting improved affordability for durable goods, it did not translate into broader optimism about household finances or macroeconomic outlook.

2. Uncertainty in Global Trade

Lingering unease about US–China trade negotiations, and potential knock-on effects on Australia’s export sectors (iron ore, LNG, rare earths), have dulled expectations for both short- and long-term economic performance. The decline in 12-month (-0.7%) and five-year (-2.4%) economic condition indices reflects consumers’ uncertainty about structural economic drivers.

3. Labor Market Anxiety

Unemployment expectations rose sharply by 5.0% to 127.4, driven by rising reports of layoffs in retail and construction, as well as weakness in part-time job creation. While still below the long-run average (129), the trend marks a reversal from improvements seen in Q1 2025.

Sectoral and Demographic Insights

Younger households (under 35) showed higher volatility in expectations for their own financial future, with a greater decline in the 12-month outlook (–2.7%).
Renters reported a sharper decline in confidence (–1.8%), likely tied to continued rental inflation and tighter access to credit.
Conversely, older Australians (65+) and mortgage-free households expressed improved sentiment, especially in durable goods purchasing—a response likely tied to fixed income expectations and stability in asset markets.

Outlook: Fragile Optimism Hinges on Labor & Housing

Looking ahead, the persistence of soft consumer sentiment may constrain household consumption growth in H2 2025, despite:

Further expected RBA rate cuts (markets are pricing in a terminal rate of 3.10%)
Moderating inflation
Strong terms of trade supported by resource exports

The housing market remains a swing factor. While house prices in Sydney and Melbourne rose 0.6% MoM, affordability remains a barrier for younger households, and consumer psychology remains deeply linked to housing wealth.

“If unemployment rises further or trade tensions resurface, we may not see sentiment return to positive territory in 2025,” warned Hassan.

Conclusion

Australia’s June consumer confidence data reveal a nuanced economic psychology: While some metrics are stabilizing, households remain broadly risk-averse and unconvinced that policy moves or global trends will decisively improve their financial standing. Policymakers and retailers alike will need to reckon with this fragility as they plan for the remainder of 2025.

Sources:

Westpac-Melbourne Institute (2025), Consumer Sentiment Survey – June 2025
Reserve Bank of Australia (2025), Monetary Policy Statement – May
Australian Bureau of Statistics (2025), CPI and Labor Market Data
Bloomberg Terminal Data (Accessed June 10, 2025)

Shruti Kant