Assessing Australia's Consumer Spending Momentum: Can the Recovery Hold Amid Regional Divergence and Flat Card Activity?

Australia's consumer spending landscape in 2025 is a study in contrasts. While some regions are thriving, others are lagging, creating a fragmented recovery that challenges the sustainability of the broader economic rebound. With card transaction volumes stagnating and regional disparities widening, investors must carefully evaluate whether the current momentum is a durable trend or a temporary anomaly.

Regional Disparities: The “West vs. East” Divide

The most striking feature of Australia's consumer recovery is the geographic asymmetry. Western Australia (WA) and South Australia (SA) have outperformed their eastern counterparts, driven by resilient discretionary spending in sectors like hospitality and tourism. These regions have benefited from localized economic strength, including resource-driven growth and a focus on domestic tourism. In contrast, New South Wales (NSW) and Queensland (QLD) face headwinds from weather-related disruptions and supply chain bottlenecks, which have dampened consumer confidence and shifted spending toward essentials.

For example, WA's hospitality sector has seen a surge in demand, with businesses like Accor and Premier Investments (owner of Country Road and珂珂) capitalizing on post-pandemic pent-up demand. Meanwhile, NSW and QLD's grocery retailers, such as Woolworths and Coles, are seeing increased foot traffic as consumers prioritize essentials over discretionary purchases. This divergence highlights the importance of regional tailoring in investment strategies.

Flat Card Activity: A Warning Sign?

Despite the headline growth in certain sectors, the broader picture of consumer spending is less optimistic. The Westpac-DataX Card Tracker Index, a key barometer of card-based spending, has remained flat at 137 in early July 2025. This stagnation suggests that the recent recovery is being driven more by inflation-driven price increases than by genuine demand.

Quarterly growth in card spending has averaged 0.9%-1.1% for most of 2025, but monthly volatility remains pronounced. For instance, June 2025 saw a slight decline in spending, and the pace of growth in early July weakened further. This pattern raises questions about the durability of the recovery: if consumers are spending more per transaction but not increasing their frequency, is the demand truly sustainable?

The Sustainability Debate: Can the Recovery Hold?

The sustainability of Australia's consumer recovery hinges on two critical factors: consumer confidence and price stability. While inflation has eased slightly from its 2023 peak, it remains above pre-pandemic levels, squeezing household budgets. Additionally, the shift toward cashless transactions—driven by the growth of digital wallets and prepaid cards—has masked underlying weaknesses. For instance, while the prepaid card and digital wallet market is projected to grow at a 9.9% annual rate, this growth reflects convenience, not necessarily increased spending power.

The regional disparities also complicate the outlook. WA and SA's strength is partly a function of their resource-based economies and limited exposure to eastern Australia's weather-related shocks. However, this advantage may not persist if global commodity prices soften or if tourism demand wanes. Conversely, NSW and QLD's focus on essential goods could prove to be a defensive strength in a downturn, but their reliance on weather-sensitive sectors remains a risk.

Investment Implications: Opportunities in Asymmetry

For investors, the key is to align strategies with regional dynamics. In WA and SA, discretionary services—including hospitality, travel, and entertainment—offer compelling opportunities. These sectors are well-positioned to benefit from the region's economic resilience and demographic trends. Conversely, in NSW and QLD, defensive plays in grocery retailing and essential goods may provide better value, as consumers prioritize cost efficiency.

However, caution is warranted. The flat card activity suggests that broad-based consumer spending is not yet on a firm footing. Investors should monitor transaction frequency metrics closely, as a sustained decline in the number of transactions (rather than just average spend) could signal a deeper slowdown.

Conclusion: Navigating the Uneven Recovery

Australia's consumer spending recovery in 2025 is a tale of two regions. While WA and SA offer optimism, the flat card activity and regional imbalances underscore the fragility of the broader trend. For investors, the path forward requires a nuanced approach: capitalize on the strengths of high-growth regions while hedging against the vulnerabilities of lagging ones. The key to long-term success lies not in chasing broad momentum but in understanding the asymmetric forces shaping Australia's economic landscape.

As the year progresses, watch for shifts in card transaction frequency and regional economic indicators. These will provide critical clues about whether the current recovery is a durable rebound or a temporary reprieve.