Australian consumer confidence climbs to two-year high

Wednesday 12th August 2009

Australian consumer confidence climbed to a two-year high as a pick-up in house prices and a stronger-than-expected labour market stoked confidence that economy is emerging from its downturn.

The Westpac-Melbourne Institute Consumer Sentiment Index rose 3.7% to 113.4 in August, rounding out a three-month rally of 27.8%, the biggest since the survey began in 1975. Prior to the latest period, the biggest three-month surges have been a 22.8% gain as the economy came out of recession in the early 1980s and a 20.3% advance after the contraction of the early 1990s.

Reserve Bank of Australia Governor Glenn Stevens last week said the next move in interest rates is likely to be an increase because the nation has managed to skirt recession and the global economy is “stabilising.”

The RBA cited strengthening consumer and business confidence and a resilient jobs market as reasons the target interest rate won’t be cut from a 49-year low 3%.

“The message is clear – as far as consumers are concerned, the worst of the current downturn appears to have passed,” said Matthew Hassan, senior economist at Westpac. “We expect the Reserve Bank to begin the cautious process of normalising rates in early 2010, with a 25 basis points increase in February,” he said.

House prices rose 4.2% in the second quarter and have recovered much of the ground lost since the start of 2008, while the unemployment rate stayed unchanged at 5.8%.

“These two pieces of data helped alleviate two of the biggest sources of consumer anxiety over the last year – fear of losing money on their biggest single asset, the family home, and fear of losing their jobs,” Hassan said.

The RBA last week forecast Australia’s economy will grow 0.5% this year, accelerating to 2.25% in 2010 that’s a turnaround from three months ago, when the central bank was expecting a 1% contraction in 2009.

The consumer sentiment survey showed confidence about family finances compared to a year ago improved 1.3% to 82.8, still well below the cut off point of 100 above which sentiment turns positive. The outlook has become more positive, rising 3.3% to 121.1.

Businesswire.co.nz

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