In April 2025, Australian consumer spending reached its highest level in nearly four years, driven by a unique alignment of public holidays and broad-based spending increases across multiple sectors.
The Visa Australia Spending Momentum Index (SMI), a key indicator of household spending trends, surged by an impressive 7.8 points to 106.4, marking a 47-month high. This milestone was notable as it was the first time since May 2021 that the SMI exceeded 100 in all states and territories, signalling widespread economic expansion.
Holiday-fuelled spending surge
“The strong performance was partly linked to April public holidays, which occurred in unusually close succession this year,” according to the Visa Business and Economic Insights report. The clustering of holidays prompted consumers to boost their spending in preparation, with significant purchases in pharmacy items, groceries, and other essential supplies. Following this preparatory phase, Australians capitalized on the extended break to indulge in leisure activities, leading to increased expenditures on car rentals and travel services. This dual-phase spending pattern underscored the robust consumer activity that defined April’s economic landscape.
All four SMI segments: discretionary, non-discretionary, fuel, and restaurant, recorded gains, reflecting a comprehensive uptick in consumer behavior. The non-discretionary SMI, which includes essentials like medical services, pharmacies, and supermarkets, led the charge with an 11.5-point increase to 107.3, outpacing other categories. Discretionary spending, encompassing sectors such as airlines, lodging, and entertainment, rose more modestly by 1.8 points to 103.4. The total SMI’s climb to 106.4 highlighted the breadth of this spending surge, with fuel and restaurant sectors also contributing to the overall growth, though the national restaurant SMI remained below 100, indicating contraction in that specific area.
Discretionary spending includes categories like fashion retail, home goods, and professional services, while non-discretionary covers essentials such as food retail, utilities, and education. Fuel and restaurant spending, while included in the total SMI, are excluded from the discretionary and non-discretionary subcategories.
Regionally, New South Wales emerged as the standout performer, registering the largest monthly SMI gain. Both New South Wales and Queensland showed signs of recovery following disruptions caused by ex-Tropical Cyclone Alfred in early March. “Gains in both the New South Wales and Queensland SMIs indicate a return to normalcy,” the report noted.
In these regions, spending was bolstered by expenditures related to replacing spoiled food and repairing cyclone-related damage, with insurance-funded purchases at department stores and other retailers playing a significant role. Queensland’s restaurant SMI, in particular, posted its most substantial monthly increase since January 2023, a sharp contrast to the national restaurant SMI’s lackluster performance.
Mixed signals in May
Consumer sentiment showed a slight recovery in May, rising by 2.2% after a sharp decline in April, based on Westpac–Melbourne Institute Consumer Sentiment Index. This improvement, however, was not enough to bring overall sentiment into positive territory, as cost-of-living pressures continue to weigh heavily on consumers.
The rise in sentiment was primarily driven by factors such as a rebound in the stock market, falling petrol prices, and improvements in household finances, particularly among older Australians (aged 65+), likely due to the wealth effects of superannuation. Despite these positive factors, there are signs of caution as sentiment remains moderately pessimistic.
Unemployment expectations improved slightly, signaling a more optimistic outlook for the labor market. However, declines in SEEK job ads in February and March raise concerns about the future direction of employment. Consumers are increasingly anticipating a rate cut by the RBA, with expectations growing that a 25bps reduction could be announced on May 20. This expectation is bolstered by easing inflation, reduced fuel costs, and price cuts in supermarket items, which have helped alleviate some of the pressure on household budgets.
Meanwhile, business conditions in Australia took a significant dip in April, with NAB’s business conditions index falling to +2, marking the lowest level since the initial COVID lockdown. This decline was accompanied by a sharp drop in capacity utilization, which returned to long-term average levels for the first time since mid-2021. These shifts highlight a cooling in business activity and efficiency, which could signal a slowdown in overall economic growth. Key sectors like retail, manufacturing, and property have shown persistent weakness, with businesses in these industries facing mounting challenges.
On the flip side, Queensland and New South Wales reported stronger business conditions, which may reflect local economic factors or better-performing industries in those states. The data also revealed rising purchase and labor costs, which could threaten the RBA’s inflation target of 2.5%. Retail price hikes, in particular, need close monitoring, as they could push inflation beyond acceptable levels if sustained. Given these conditions, a 25bps rate cut by the RBA is expected in the upcoming monetary policy meeting, though inflationary concerns may prevent more aggressive easing.
Clouds on the economic horizon
Despite the encouraging April figures, Visa economists cautioned that economic challenges loom on the horizon. “While the strong April SMI readings provide reasons for optimism, business confidence is weakening and job ads remain below their 2024 average—two indications of a potential loss of momentum in the labor market that could weigh on consumer spending as external headwinds build,” the report warned. These signs of softening business sentiment and labor market activity suggest that sustaining April’s spending momentum may prove challenging in the face of broader economic pressures.
Earlier we reported that the ongoing cost-of-living pressures and rising business costs are driving up payment defaults across Australian businesses—particularly in large industries. With consumers pulling back on spending, sectors like hospitality, retail, and construction are seeing marked declines, and insolvencies and defaults are on the rise. The latest data reinforces the economic strain, highlighting a trend that could further destabilise the business environment in the coming months.
Insolvencies remained elevated in March. While figures were broadly unchanged from February, they were 17% higher than in March 2024. As a share of total company registrations, insolvencies continue to sit well above pre-COVID levels.
Australians feel better, but businesses don’t
CreditorWatch Chief Economist Ivan Colhoun noted that rising US tariffs are fuelling global financial market volatility, eroding both consumer and business confidence. This uncertainty is causing many businesses to delay purchases, hiring, and investments—worsening financial pressures and leaving vulnerable companies even more exposed.
Meanwhile, tax debt defaults with the ATO are rising. Around 30,000 businesses now owe more than $100,000, with construction and food and beverage services among the worst affected. Since October 2024, fewer businesses are paying down tax debts or entering into payment plans, a trend that may signal a further wave of insolvencies in the months ahead.
The Visa SMI is calculated using a diffusion index framework, scoring values from 0 to 200 based on year-over-year changes in household spending. A score above 100 indicates broad-based economic expansion, while a score below 100 signals contraction. The index leverages aggregated, depersonalized data from VisaNet and third-party sources, employing proprietary techniques to filter out business-related noise such as portfolio flips or changes in merchant acceptance.
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