Australian consumer confidence tumbles as recession looms

Wednesday 11th February 2009

Australian consumer sentiment dropped this month, suggesting interest rate cuts and fiscal stimulus plans haven't yet made up for a rising jobless rate and weak housing market.

The sentiment index declined 4.6% to 85.8 points, according to the Westpac Banking Corp. and Melbourne Institute released today. A reading below 100 indicates pessimists outnumber optimists, which has been the case since February last year.

Consumer sentiment fell even after the central bank cut its key rate to a 45-year low 3.25% and the federal government announced a A$42 billion stimulus package, with payments to families and lower-income people, spending on schools, housing and roads.

"While consumers recognise the improvements in current
conditions resulting directly from the aggressive policy stimuluses they are unusually fearful of the future," said Bill Evans, Westpac chief economist, in an e-mailed statement.

Westpac expects the Reserve Bank of Australia will cut its key rate by 75 basis point at its March 2 meeting, though there's the possibility of a smaller reduction as the central bank keeps some easing ability up its sleeve as growth slows this year.

The consumers' expectations index, which gauges opinions about economic conditions over the next 12 months, fell 7.6%, according to the survey.

Gross domestic product rose just 0.1% in the third quarter while the jobless rate rose to a two-year high 4.5% in December, stoking concern the economy may slip into recession. Employment figures for January are scheduled for release tomorrow.

By Jonathan Underhill

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