How has COVID-19 changed Australian consumer spending habits?

4 min read

Despite some signs of an economic recovery, the Australian consumer remains guarded when it comes to confidence around spending. The main concerns centre on employment, cash flow certainty, managing personal finances, building and protecting future wealth, and planning for retirement.

Australian spending habits have changed markedly in the last few months. Consumers continue to worry about the strength of the economy, the duration of the pandemic and overall public wellbeing. But while Australian consumer spending remains slow, we’re seeing signs of recovery across most categories and grocery spending, in particular, is finally stabilising1.

With restrictions easing in some states, some Australians can spend more time outside their homes. The rapid increase in online spending has slowed, and, for those in states with eased restrictions, a return to more ‘normal’ consumption habits are resuming. However, it’s likely the increased appetite for spending via online channels will stay with us beyond the pandemic.

Five drivers of consumer spending

Even when we’re not in the middle of a global pandemic, five basic factors influence consumer spending habits1.

1. Disposable income

Arguably the single most important driver. Without disposable income, consumers wouldn’t have money to buy anything. In the classic supply and demand balance, as income increases so does demand. Manufacturers respond to meet demand, this creates jobs, wages rise and there’s ultimately more spending – a big tick for the economy.

2. Income per capita

The amount each person has to spend is a good indicator of whether the standard of living is improving or falling.

3. Income inequality

Different parts of the economy, and society, see incomes rise at a faster pace than others. The economy benefits most when low-income earners enjoy a rise in income as they spend a greater share of each dollar on essential items. High-income earners are instead more likely to save or invest their extra money.

4. Household debt

This includes the level of credit card debt, car loans and personal loans and other fixed cost commitments.

5. Consumer expectations

Confidence breeds confidence, and confident consumers are more likely to spend. High inflation expectations also drive activity with consumers generally incentivised to buy now and avoid future price increases.

Economic impact of consumer spending

Governments face a constant dilemma when managing key economic indicators and the impact of the current pandemic has been no different.

  • Should a government stimulate spending to delay or avoid a recession?
  • Or should a government cut business taxes to create jobs and increase wages?

The problem is, without spending, businesses will eventually stop trading and be forced to lay off workers, leaving the government with less tax revenue. If the economy is left to rely on exports, which as we’ve seen isn’t sustainable during the global pandemic, this could cause supply chains to grind to a halt. The only way to support businesses long term is then to rely on borrowing, which creates debt-laden balance sheets and potentially hampers future recovery and growth. To a degree, that’s why we have seen our own reserve bank cut rates to historical lows.

Consumer spending is a more significant influencer on the economy than many people realise. Even a small reduction in Australian spending habits has a dramatic impact.

Genuine recovery or temporary relief?

According to the Westpac COVID-19 research tracker, although many restrictions have been lifted around Asutralia, we’re not seeing a significant positive momentum shift in consumer spending, although most financial indicators are stable.

  • 58% of households have already had a reduction in their household income as a direct result of COVID-19.
  • 33% of households are struggling to meet their financial commitments.
  • 29% of consumers plan to save more post the pandemic than they did before.
  • 71% of consumers have already cut their spending, held off making large purchases or held off borrowing.

Supporting the assertion that the economy benefits most when low-income earners enjoy an income increase, it seems those consumers who received the Government’s Coronavirus Supplement and/or stimulus payments are currently the main spenders2.

Recent data from illion and AlphaBeta indicates a slow return to ‘normality’ for the Australian economy. With the help of ‘pent up’ demand, spending at cafes has almost returned to pre-pandemic levels, and restaurants are enjoying a 20% increase thanks to the increasing popularity of home food delivery2.

In the gender stakes, men were early adopters of the new normal, initially keen to spend money on personal care like haircuts. But the re-opening of some beauty salons has seen women take over the personal care charge.

Digital disruption for retailers

For the retail sector, it’s a story of mixed fortunes. Shops forced to close face the difficult decision about whether it’s still financially viable for them to re-open. But on the positive side, online sales have accelerated rapidly with some digitally-agile businesses recording exceptional uplifts in sales figures and profits.

While retail sales have bounced back since restrictions were initially eased at the beginning of May, online shopping remains the potential saviour for retailers, with many analysts predicting consumer behaviour may have changed permanently3. And as we face into a second wave of the pandemic, online sales may prove even more important.

In fact, data from Australia Post estimates online shopping grew 80% year-on-year in the two months to 15 May 20204. There’s a new set of customers who didn’t previously shop online but are now quite comfortable spending money from the comfort of their own home. This is expected to result in a permanent increase in online sales5, particularly as the uncertainty around how long the pandemic will last continues.

But it won’t be a solution that works for all retailers. The impact and success of individual companies will depend on the types of products they offer online and how much they had invested in the brand’s digital presence before the pandemic.

Preparing for the future

New consumer spending patterns reveal how important the stimulus measures, being primarily JobKeeper and JobSeeker, have been and still are. On July 21, the government announced proposed changes to JobKeeper, including an extension through to 28 March 2021. These changes do not impact JobKeeper payments until after 28 September 20206.

With 56% of households believing their financial situation to be vulnerable or worse because of the pandemic, they are likely to struggle to meet all their financial commitments unless they either reduce spending, draw down on savings or access credit7. Australian consumers have some important decisions to make about both their short-term spending habits and their long-term wealth accumulation and retirement savings.

The temptation to focus purely on immediate needs will be strong but seeking good advice about how to prepare and invest for the future is equally as important.


3 How COVID-19 will permanently change consumer behaviour, Accenture, April 2020
4 Inside Australian Online Shopping: eCommerce market insights, Australia Post, 15th May 2020
7 Westpac COVID-19 research tracker

This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 7 July 2020. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.