Westpac CEO Peter King warns on ‘flat’ consumer spending

Warning lights are flashing on consumer spending, with Westpac chief executive Peter King cautioning things are unlikely to get any better until a rate cut.

Warning lights are flashing on consumer spending, with the boss of one of Australia’s biggest banks cautioning things are unlikely to get any better until a rate cut.

Speaking at a trans-Tasman business event on Friday, Westpac chief executive Peter King said the bank was concerned about a large part of the population that was being squeezed by the current economic cycle.

Mr King said despite a surge in inflation and population, Westpac’s card data was showing national spending was tracking sideways, in effect falling relative to everything else.

“It’s backwards on a per-capita basis,” he said.

The gloomy outlook was reflected in the latest national accounts figures from the Australian Bureau of Statistics, which revealed the economy grew by just 0.2 per cent, on a seasonally adjusted basis, in the three months from March to June.

Gross domestic product slumped 0.4 per cent in the period.

This comes as the population continued to grow after lifting 0.4 per cent in the quarter to December, with Australia adding a further 129,400 people

Mr King said Westpac was still seeing “good demand” in the bank’s core markets of home and business lending.

Westpac CEO Peter King. Picture: NCA NewsWire/Tertius Pickard

Westpac told investors at its recent earnings update in August the bank was continuing to see growth in its lending and deposits.

Housing growth was up 8 per cent, while deposits were up 3 per cent.

Mr King said Westpac was only seeing “a little bit of stress” in its home lending book, with most borrowers well ahead of their loan repayments.

He said Australia was increasingly slipping into a two-speed economy, with some borrowers benefiting from the higher rates cycle and largely immune from pain points.

“We have a part of society that’s done really well,” he said.

But Mr King said renters were “doing it really tough”.

“The averages hide things, generally they look OK but it’s an uneven impact,” he said.

Mr King said things were unlikely to improve until the Reserve Bank of Australia cut rates, noting Westpac now expected a 1 per cent rate cut taking interest rates to the “low 3s” by the end of the year.

“When we see a rate cut, I think there will be optimism,” he said.

Mr King warned consumer confidence was hanging at “recessionary levels”.

“If the forecast is right we’ve got to get through these next five to six months, I’m hopeful we’ve got a better future in front of us,” he said.

RBA governor Michele Bullock dismissed talk of a rate cut this year, warning inflation was “really causing trouble for people, and causing trouble for the most vulnerable”.

Jarden retail analyst Ben Gilbert said Australia was likely to increase its retail spending in 2025, in part to the replacement of products bought during the Covid-19 pandemic.

But Mr Gilbert said Jarden expected a “weaker macro backdrop for household goods” in part driven by the housing market.

UBS analysts also warned the housing cycle was underpinning a weakness in consumer spending, but cautioned this was likely to persist into 2025.

Westpac New Zealand CEO Catherine McGrath said things were looking just as gloomy on the other side of the Tasman.

Ms McGrath said New Zealand card spending had “gone back for the last five months”.

The RBANZ cut interest rates by 25 basis points at its August meeting, with Wesptac forecasting a further 50 basis points coming before Christmas.

Ms McGrath said this was not translating through to retail spending.

“We haven’t seen that improvement in retail card spend but we are keeping a really close watch,” she said.

Separately, Mr King said Westpac was grappling with customers getting hit by scam losses, warning more needed to be done to stop financial crime.

Mr King called for a SMS registry, to stop scammers masquerading as Westpac in text messages to customers.

The government introduced legislation in June to put in place an SMS register.