Australian Consumer Sentiment Worsens in August, RBA Decision Fails to Ease Economic Concerns
Australian consumer sentiment took a hit in August, with worries about the economic outlook persisting despite the Reserve Bank of Australia’s (RBA) decision not to raise interest rates for a second consecutive month. The Westpac-Melbourne Institute index of consumer sentiment dropped by 0.4% in August compared to the previous month, where it had previously shown an increase of 2.7%. This decline brings the index reading to 81.0, indicating that pessimists continue to outnumber optimists. Notably, this level was typically associated with recessions in the past.
One of the reasons behind the RBA’s decision to hold rates steady at 4.1% was a slowdown in consumer spending. However, the central bank warned that it might need to hike rates further in order to combat inflation effectively. Unfortunately, the consumer sentiment survey revealed little to no impact from the RBA’s decision to pause, as sentiment actually declined by 4.9% between those surveyed before and after the announcement.
Interestingly, two-thirds of respondents still anticipated a rise in rates over the next year, resulting in a significant drop of 7.2% in sentiment among mortgage holders. Furthermore, the survey’s measure of economic conditions for the next 12 months slipped by 4.0%, while the outlook for the next five years dipped by 0.8%.
Despite the gloomy outlook, there were some positive aspects highlighted in the survey. Family finances showed a modest improvement, rising by 3.4%, and the possibility of buying a major household item was deemed slightly more favorable, edging up by 0.3%. However, when it came to buying a house, consumers were noticeably more pessimistic. Nevertheless, they remained bullish on house prices, with the corresponding index reaching its highest level of the year so far.
In summary, Australian consumer sentiment worsened in August, reflecting ongoing concerns about the country’s economic prospects. The RBA’s decision to keep interest rates unchanged did little to alleviate these worries, as consumers maintained a cautious outlook. With the prospect of potential rate hikes in the future, sentiment among mortgage holders particularly suffered. While there were slight improvements in family finances and buying major household items, the sentiment surrounding the purchase of a house remained negative. It remains to be seen how these economic concerns will impact Australia’s overall economic health in the coming months.
