Deloitte Access Economics tips Australian consumer-led recovery in 2025

Deloitte says recent strong retail trade and improving sconsumer sentiment should unleash a substantial rise in household spending in the new year.

Australian consumers are showing signs of improved confidence. Picture: Max Mason-Hubers

Australian businesses should see a significant uptick in 2025, Deloitte Access Economics says.

Strong retail spending in October coupled with improving consumer sentiment increases the prospect of a long-awaited consumer recovery.

Deloitte said the notable improvement in consumer sentiment in recent months and the extra dollars from tax cuts were starting to flow through to the economy and showing up in live retail data.

Analysts at the major accounting firm said that an interest-rate cut from the Reserve Bank, which could occur in the first few months of 2035, could be the green light needed by consumers to spend big again.

Deloitte forecasts real retail turnover to rebound, projecting growth from minus 0.3 per cent this year to 2.1 per cent in 2025 and 2.5 per cent in 2026.

“A rate cut from the RBA, whenever that might be, could be the green ‘go’ light consumers need to feel comfortable spending again,” Deloitte Access Economics partner David Rumbens said.

After braving a retail recession in the middle of 2024, retailers are looking ahead with cautious optimism. In its latest edition of the Retail Forecasts report, Deloitte Access Economics revealed that nominal retail turnover rose by 0.6 per cent in October, driven by Australians taking advantage of earlier-than-usual holiday discounts.

Mr Rumbens said an earlier increase in the number of Google searches for “sales” compared with 2023 suggested that consumers were shifting to spending instead of saving.

“This shift has likely continued into November, driven by saturated Black Friday campaigns,” he said.

“This is a sign of hope after retailers have braved two retail recessions in the past 18 months.”

September quarterly retail data adjusted for inflation shows sales growth of 0.5 per cent, but that was only the second quarter of positive real growth in the past two years.

Real retail turnover was 1.4 per cent lower in September compared with September 2022.

The Australian Bureau of Statistics data shows that the economy is almost single-handedly being propped by government spending as gross domestic product rose 0.3 per cent in the September quarter and 0.8 per cent in the year.

Deloitte Access Economics partner David Rumbens.

Households were in a quasi-recession as GDP per capita fell 0.3 per cent for the seventh consecutive quarter.

Mr Rumbens said shifting momentum has occurred since tax cuts that flowed through to consumers in July. National Accounts data released this week showed that household disposable income grew by 1.5 per cent over the September quarter, while household consumption was flat.

“How much consumers would spend was always going to be uncertain,” Mr Rumbens said.

“It was clear that consumers wanted to build back up their savings buffers and pay down mortgages before spending.

“But the tide is turning. The notable improvement in consumer sentiment in recent months and the extra dollars from tax cuts is starting to flow through to live retail data now.”

While the recovery outlook appears promising, Mr Rumbens warned of potential risks, including uncertain consumer behaviour, ongoing discount pressures, and potential economic disruptions tied to the upcoming domestic election and global trade policies.

“Despite these challenges, the signs are clear – a consumer recovery is on the cards for 2025 and beyond,” he said.

Mr Rumbens said that while a recovery for retailers was expected, the uncertain timing for the shift in consumer spending and the “discount dilemma” were crucial challenges for the sector. He said the effects of potential trade policy changes by a second Donald Trump administration in the US, and the looming federal election, may cause some bumps.

“However, these risks should not overshadow the fact that a consumer recovery is on the cards for 2025 and beyond,” he said.

Data from the Australian Securities and Investments Commission shows that insolvency appointments for the retail trade sector rose 42 per cent to 768 in the 2024 financial year, while numbers for the first half of the 2025 period are tracking ahead of the previous corresponding period.

This year several large retailers such as Booktopia and Mosaic Brands have entered into voluntary administration.

Godfreys had sold vacuum cleaners for almost 100 years until it collapsed in January and closed for good in May.