Australian small and medium enterprises (SMEs) are witnessing a cautious uptick in consumer spending, offering a glimmer of optimism amid challenging economic conditions. According to the latest Visa Spending Momentum Index (SMI), consumer spending in March rose by 2.7 points to 98.6, reversing two consecutive months of declines. While the index remains below the 100 threshold, indicating ongoing contraction, the improvement signals potential relief for SMEs reliant on consumer demand.
The Australian Capital Territory led the charge, posting a robust SMI of 100.6, reflecting stronger spending momentum than other regions. Elsewhere, states and territories lingered below the 100 mark, but their first-quarter averages either matched or surpassed 2024 levels, suggesting a degree of resilience. Queensland, in particular, demonstrated fortitude, shrugging off the impacts of ex-Tropical Cyclone Alfred to record a 1.6-point increase in March. This resilience is a positive signal for SMEs in retail, hospitality, and services, which often bear the brunt of economic disruptions.
Discretionary sectors see meaningful gains
The spending rebound was broad-based, with the four SMI segments like discretionary, non-discretionary, fuel, and restaurant all witnessing gains. Discretionary spending stood out, reaching an encouraging 101.6, a boon for SMEs in sectors like travel, entertainment, and specialty retail. South Australia and Tasmania saw the largest discretionary SMI gains, as consumers loosened purse strings for non-essentials, offering local businesses a much-needed boost.
Meanwhile, Victoria’s restaurant sector recorded its strongest monthly gain since January 2023, with the restaurant SMI aligning with a 14% year-on-year increase in OpenTable seated diners, slightly above the national average. This surge underscores a growing appetite for dining out, a critical revenue stream for hospitality SMEs.
Resilience meets risk as consumers loosen purse strings
For small business owners, these trends suggest a gradual thawing of consumer caution, though challenges persist. Rising real disposable income growth is providing households with slightly more financial wiggle room, enabling spending on non-essentials like dining and travel. Additionally, the recent announcement of a six-month extension of electricity rebates is expected to ease cost-of-living pressures, further supporting household consumption in the near term. These factors are critical for SMEs, many of which operate on thin margins and depend on consistent cash flow to weather economic uncertainty.
However, the recovery is not without risks. While geopolitical tensions loom, they have yet to derail the tentative rebound in non-essential spending. SMEs in discretionary sectors, particularly hospitality and retail, should capitalize on this momentum by optimizing operations and engaging customers through targeted promotions. The data indicates that consumer confidence is slowly returning, but businesses must remain agile to navigate potential headwinds.
March’s spending uptick offers Australian SMEs a cautiously optimistic outlook. As disposable incomes rise and cost-of-living relief measures take effect, small businesses in discretionary and hospitality sectors are well-positioned to benefit. Continued focus on customer retention and operational efficiency will be key to sustaining this fragile recovery.
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