Australian consumer confidence dips on gloomier economic outlook

Wednesday 20th May 2009

Australian consumer confidence dipped this month as people grew gloomier about their personal finances and the longer term outlook for the economy.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 4.3% in May from April to 88.8 points. A reading below 100 indicates pessimists outnumber optimists, as they have done for 16 straight months.

Consumer sentiment probably deteriorated in the wake of the federal budget last week, which forecast a A$32 billion deficit in the year to June 30 and a record A$57.6 billion in 2010. The government’s response to recession, with a multi-billion dollar spending plan on infrastructure and fiscal handouts, is set to drive national debt to as high as 13.8% of GDP in 2014, according to Treasury forecasts.

An index measuring consumers’ expectations for economic conditions over the next five years tumbled by 13.6% while the short-term economic outlook was unchanged from the previous survey.

“Consumers have been unnerved by the sharp rise in the government’s deficit and the associated ballooning of the national debt,” Westpac chief economist Bill Evans said in a statement.

“It’s reasonable to conclude that consumers did not see the budget as a positive for their own finances and are focusing on the temporary nature of the fiscal handouts and the apparent limited scope for further fiscal stimulus over the years ahead,” he said.

The consumer sentiment survey was conducted between May 11 and May 17.

The drop in sentiment may also have reflected the Reserve Bank of Australia’s decision to keep its key interest rate unchanged at 3% at its meeting this month, Evans said. The decline in Australia contrasts with less pessimistic readings for sentiment in the US, the UK, Europe and Japan.

Consumers were more upbeat about big-ticket spending, with a 7.3% increase in the number saying it was a good time to buy a major household item.

Businesswire.co.nz

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