All the leaks in the lead up to the budget had already impacted confidence in the Australian economy, as the The ANZ – Roy Morgan Consumer Sentiment survey showed this morning.
ANZ has consistently said the biggest risk to Australian economic growth is how deep the budget cuts are, and how they affect confidence.
Now, ANZ’s economics team has released a note following the release of the budget this evening, outlining the bank’s view on this, as well as confidence and interest rates:
For ANZ, the key for interest rates and markets is the extent to which this budget impacts on confidence and consumer and business spending over the next few months. The lead up to the budget has already had a significant impact on consumer confidence over the past three weeks. At the very least, the measures announced tonight will likely cement the view that interest rates will not rise in 2014, potentially softening the AUD a little. And the risk is the market may price that rate rises do not occur until later in 2015 and/or more gradually than currently expected.
Overall, the budget must be assessed relatively positively on most criteria, with only the extent to which the move to tighten while the recovery remains nascent and moderate and the prior labelling of Australia’s budget situation as a crisis really open to significant debate (the latter may have unnecessarily impacted negatively on consumer and business confidence as Australia’s finances remain in enviable shape on any global comparison). For now expect the budget to be received generally favourably by markets, impact somewhat on consumers and thus keep the recovery modest in the near term, but have longer-term benefits for Australia’s fiscal flexibility and the ability to cope with either further weakness in the terms of trade and demographic developments.
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