The majority of respondents viewed news related to inflation, interest rates, and the economy as unfavourable. The Reserve Bank of Australia’s (RBA) decision to raise the official cash rate by 0.25 percentage points (ppts) in March further weighed on consumer confidence. Furthermore, the March rate hike was widely anticipated by consumers, with little difference in sentiment amongst those surveyed before and after the decision, as per the survey.
Most consumers continue to expect further rate rises. Amongst those surveyed after the RBA decision, 74 per cent expect rates to move higher over the next year with 45 per cent expecting a rise of 1 ppt or more—down only slightly from 80 per cent and 53 per cent respectively in the February survey. This 45 per cent proportion seems excessive given that the governor has discussed the prospect of a pause. Westpac and markets are not looking for further increases of more than 0.5 ppt. Consumers may become less negative as current fears of a more threatening interest rate outlook ease.
The ‘economic outlook, next 12 months’ sub-index declined 2.3 per cent to 73.3, the weakest read since August 2020, when Victoria entered its ‘second wave’ COVID lock-down.
Interestingly, the ‘economic outlook, next five years’ sub-index posted a solid 5.6 per cent lift to 95.3. The sub-index continues to hold at more resilient levels than other components, the March rise putting it a touch above its long run average.
Confidence around jobs has been a lone positive feature in an otherwise bleak consumer landscape over the last year but continues to show signs of weakening in 2023. The Westpac Melbourne Institute Unemployment Expectations Index rose a further 2.9 per cent in March, having jumped 10.6 per cent in February (recall that higher index reads mean more consumers expect unemployment to rise in the year ahead). At 122.9, the index is still below the long run average of 129 but there does look to be a shift afoot.
Some of the fall in buyer sentiment may also reflect concerns that prospects of a price-led improvement in affordability are fading. Consumer expectations for house prices continue to lift. Despite the latest rise in interest rates and expectations of more to come, the Westpac Melbourne Institute House Price Expectations Index posted a robust 8.6 per cent rise in March, reaching an eleven-month high. At 111.7, the index is now firmly in ‘net positive’ territory (index reads above 100 mean more respondents expect prices to increase than decline over the next 12 months), although still below the long run average of 127.
"This marks the second consecutive month of extremely weak consumer sentiment. Index reads below 80 are rare, back-to-back reads even rarer. Indeed, both the COVID shock and the Global Financial Crisis saw only one month of sentiment at these levels. Runs of sub-80 reads have only been seen during the late 1980s/ early 1990s recession and in the ‘banana republic’ period of concern in 1986, when the Australian dollar was in free-fall after the Federal government lost its triple-A rating,” said Bill Evans, chief economist, Westpac Group.
ALCHEMPro News Desk (DP)
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