Consumer spending dip leads to recession-like conditions: Jirsch Sutherland

The softening of the nation’s GDP growth has deepened “date-night economics”, where consumers have cut back on entertainment and dining out, creating recession-like conditions, said Jirsch Sutherland, an insolvency solutions firm.

The Australian National Accounts on Wednesday (3 May) announced that the growth of the Australian economy has softened by 0.1 per cent annually as a result of modest household and public sector expenditure and a range of other factors, including cyclone disruptions to mining and export activities.

Millennials, renters, workers in trade, labour-intensive, and construction-related occupations are the most impacted as Australia’s cost-of-living intensifies, the firm said.

“These people aren’t necessarily unemployed; many are fully employed but have simply exhausted their financial buffers after several years of compounding rising costs,” said Chris Baskerville, partner at Jirsch Sutherland.

The firm noted that financial pressure has led to a reduction in discretionary spending. “While Australia may have avoided a technical recession, many households and businesses are experiencing recession-like conditions,” Baskerville said.

“Consumers are becoming far more selective about where their money goes. Discretionary spending is under severe pressure, and small businesses are feeling the impact,” he said.

“We’re seeing households strictly prioritise mortgages, rent, utilities, fuel, insurance, and groceries,” Baskerville added.

“That slowdown flows quickly through to cafes, restaurants, retailers, trades and other SMEs already operating on razor-thin margins,” he noted.

As businesses suffer from weaker consumer demand and elevated operating costs, they are also faced with increasingly active debt recovery action from the ATO, big four banks, and other creditors, Baskerville added, leading to the need for other options, including insolvency.

“We’re increasingly seeing business owners dip into personal savings and unsecured credit cards just to keep operating. Financial pressure is no longer isolated to business balance sheets – it’s hitting households hard,” he said.

“Many of these cases involve small business owners whose personal and business finances have become deeply intertwined, making it increasingly difficult to separate household financial stress from business distress.”