1. State of Consumers

Measuring resilience and 2025 spending growth

In this chapter:

Shifting pressure points
Top concerns influencing choice
Future economic indicators

State of Consumers

Decoding the behavioral economics driving consumer decisioning

The global outlook for consumers is improving. Consumers are determined in their resilience to stay ahead, vigilant against further disruption and intentional about every aspect of their everyday spending. Some pressure points have shifted, but many have lingered in mind and body. In this climate, there is a prevailing mindset of determination, where any gains are being intentionally evaluated and repurposed wisely.

In this shift from cautious to intentional consumption, there is looming uncertainty around economic stability, personal solvency, and environmental health.

Ernie Tedeschi
Director of Economics at The Budget Lab at Yale, Visiting Fellow, Psaros Center for Financial Markets and Policy at Georgetown University

1

“Consumers will face uncertain and conflicting pressures in 2025. Over the last six months, growth momentum in some economic indicators appears to have slowed somewhat and may continue to cool toward more typical pre-pandemic paces. Consumer attitudes also remain soft in many advanced economies. But inflation is broadly renormalizing, and several central banks have already begun lowering or are about to lower interest rates. These developments should otherwise boost sentiment and help stabilize consumer spending, especially in interest rate-sensitive sectors like housing and durable goods.”

Steady global growth expected for 2024 and 2025, inflation expected to continue to ease

Annual
GDP growth
projections–
2024 vs. 2025:

% growth,

year over year

Global total: 3.1 (2024) → 3.2 (2025)

While the global economy is projected to experience steady growth in 2024 and 2025, with inflation easing, it's crucial to recognise that this optimism isn't universally shared. The OECD predicts variations in GDP growth across different regions, with advanced economies like those in Europe potentially facing weaker growth compared to the US and many emerging markets.

In this context, Australia and New Zealand are in an interesting position. Our growth trajectory, while expected to accelerate in 2025, sits below the global average. It's more aligned with the projected growth of Western European countries than the robust figures anticipated for the US.

Inflation continues to slow down across ANZ, although still above pre-pandemic levels

Inflation, another prominent economic indicator, has declined in both Australia and NZ, but it’s still above the pre-pandemic levels of around 2% a year.

According to measures from International Monetary Fund (IMF), average consumer prices are expected to continually come down into 2026, offering potential relief. However, uncertainties persist, and the pace of this decline may be slower than anticipated, posing challenges in the fight against inflation. This could disproportionately affect financially vulnerable consumers, especially if interest rates remain high.

A swirling number of other unknowns — related to climate change, global conflict and the stability of employment — are all potential threats to the steady momentum being built. Thus, while the outlook ahead holds promise, consumers, governments and the world –at large remain determined, yet hesitant about what 2025 has in store.

Why?

Half of Australians still feel worse off financially, feeling the pinch of increased costs

14%

_{of Australian consumers say they’re in a}_{better financial position}_{compared to a year ago –}_{up 1%}_{vs. Q1 2024}

48%

_{say they’re in a}_{worse financial position}_{compared to a year ago –}_{down 4%}_{vs. Q1 2024}

VS

_52%

_{Due to increased costs: food prices, utility, interest rates, housing}

_37%

_{Think we are currently living in a recession (vs. 30% in Q1 2024)}

_25%

_{Expect to be in a recession for the next 12 months (vs. 22% in Q1 2024)}

The strength and determination of consumers is evident: In the past six months, we’ve seen rebounds in the percentage of the population who feel worse off financially compared with a year ago. Today 48% feel this way in Australia — a slight improvement from January, but still at same levels since early 2023.

Some pressures are harder to dodge. It’s been impossible to completely escape the rising costs of living. In fact, among the consumers who said their financial situation is worse, 52% attribute it to increased costs of living — a compounding factor that is likely to weigh on wallets for some time.

The prolonged higher cost of living pressure impacts consumer perception about a recession – 37% of consumers in Australia believe we are currently in a recession, up from 30% in early 2024.

Consumer financial position. Sentiment year over year (% respondents)

Why?

Half of New Zealanders also feel worse off financially, with 3 in 4 perceiving the current scenario as a recession

22%

_{of New Zealand consumers say they’re in a}_{better financial position}_{compared to a
year ago –}_{up 1%}_{vs. Q1 2024}

55%

_{say they’re in a}_{worse financial position}_{compared to three years ago.}

VS

_75%

_{Think we are currently living in a recession (+21p vs Q4’23)}

_50%

_{Expect to be in a recession for 12+ months (same as Q4’23)}

_35%

_{Only have enough for food and shelter (+2pts vs Q4’23)}

_{While in NZ, the situation is a bit worse, as we still have 52% of consumers saying they are worse off financially, but the perception of recession is much higher, with 75% believing that they are currently in a recession, and 35% saying they only have enough money for basics like food and shelter.}

Top concerns in both Australia and New Zealand are still related to higher cost of living

What’s keeping consumers awake at night? As the chart illustrates, the top concerns for consumers in both Australia and New Zealand revolve around the rising cost of living. This echoes the anxieties seen in early 2024, where escalating food, utilities, and housing prices, coupled with higher interest rates, weighed heavily on consumer sentiment.

Australia

New Zealand