Australian consumer confidence has nosedived to depths reminiscent of the early 1990s recession. This follows the Reserve Bank of Australia's (RBA) recent decision to raise interest rates to their highest level since 2011. The Westpac–Melbourne Institute consumer sentiment index captured this decline, showing a significant drop in response to the rate hike.
From 28 September to 1 October, the survey found the confidence index fell by 4.7% to 80.4% in October. That drop marks the lowest level since tensions in the Middle East flared in early April. But for those surveyed after the RBA's announcement on 29 September, the index plummeted further to 67.2%. These figures are akin to the late 1990s downturn.
This unsettling trend mirrors the weekly ANZ-Roy Morgan consumer survey, which also registered a fall of about 5% to 67.1 points. Matthew Hassan, Westpac’s head of Australian macro-forecasting, commented on this persistent weakness in consumer sentiment, drawing parallels with the early 1990s economic struggles. He stated, “Australian consumers remain stuck in a cost-of-living nightmare that seems to have no end in sight.”
Hassan pointed to the RBA’s rate hike as a key factor in the plummeting confidence, with severe impacts on family finances and buyer sentiment. While short-term economic outlooks took a hit, long-term economic assessments have returned to levels prevalent during Melbourne’s second lockdown in August 2020.
AMP economist My Bui highlighted the September rate increase and soaring fuel prices as contributors to the declining consumer confidence. “The weekly petrol bill for a typical Australian household has gone up by $20 compared to the beginning of the year, ” Bui noted. She warned that such a drop in confidence could lead to reduced household spending, hinting at a potential contraction in consumption per person this year.
Different home ownership groups felt the pinch differently. Mortgage holders were particularly downbeat, with their index at 77 points due to climbing borrowing costs. Homeowners without mortgages saw the biggest sentiment drop, as the housing market slump dragged into a sixth month. Renters, however, were more hopeful, with their sentiment steady at 84.8 points.
Hassan also pointed to rising fears over job security, with unemployment expectations climbing by 1.9%. Yet, there's a silver lining. The labor market shows resilience. Citi analysts Josh Williamson and Faraz Syed reported job vacancies hitting a two-year high of 122 points, matching business sentiment that anticipates positive employment growth.
