Australia’s consumer confidence slumped in March as households were shaken by a slowdown in economic growth and the prolonged downturn in the property market.
Sentiment fell 4.8 percent to 98.8, the weakest reading since September 2017 and meaning pessimists now outnumber optimists, Westpac Banking Corp. said in a statement Wednesday. It said responses during the survey showed “a marked drop off” after gross domestic product data on March 6.
“Australia’s housing market downturn — a key factor in disappointing December quarter growth figures — also looks to have had a more direct impact on sentiment,” said Matthew Hassan, senior economist at Westpac. “Consumers in Sydney, which has seen the largest house price declines over the last 18 months, recorded a sharp 10 percent fall in sentiment.”
Tumbling property prices, driven by increased housing supply and a squeeze on credit, are casting a pall over households. The downturn has been most acute in Sydney, which has seen prices fall 13.2 percent from a mid-2017 peak.
The Reserve Bank is concerned that Australians’ declining paper wealth will prompt them to pull back on consumption and further slow growth.
The concern about households — who are also carrying among the highest debt load in the developed world — was a key factor behind RBA Governor Philip Lowe abandoning a tightening bias in favor of a neutral policy stance.
“All index components recorded falls in March but the biggest shift was in consumers’ near term expectations for the economy,” Hassan said. The “economic outlook, next
12 months’’ sub-index fell 6.9 percent, following a 7 percent gain in February and a 7.8 percent drop in
January,” Lowe said.
The “economic outlook, next five years” sub-index fell 5.5 percent, “with a similar choppy profile over the previous two months,” he said.
GDP data last week showed the economy slowed to an annualized 1 percent in the second half of last year from 3.8 percent in the first. That was the weakest six-month period since the global financial crisis. Westpac said the data had a direct impact on its survey: sentiment’s combined reading dropped to 92.7 after the March 6 release, from 100.7 before — an 8 percent decline.
Australia is in the midst of an economic contradiction: while growth has slowed sharply, firms keep steadily hiring and investing — and unemployment is down to 5 percent.
“Job loss concerns rose sharply in March,” Hassan said. “The Westpac-Melbourne Institute Unemployment Expectations Index recorded an 8.9 percent jump, indicating more consumers expect unemployment to rise.” He said that “points to a material deterioration from the strong labor market conditions that prevailed throughout 2018.”
The RBA has kept rates unchanged at a record-low 1.5 percent since August 2016; however, since the GDP results, money markets are pricing in a rate cut this year as a done-deal. Westpac is predicting two cuts this year.