Australians remain nervous and risk adverse based on where they intend to invest

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  • Australian consumer sentiment remains subdued despite strong hiring and economic growth over the past year.
  • Most Australians believe the wisest place to invest at present is to pay off debt or save.
  • This risk averse behaviour mirrors recent weakness in household spending levels.

Australia created over 300,000 jobs over the past 12 months, and economic growth is accelerating.

It’s the type of scenario that would normally make households feel confident about themselves.

The only problem is it isn’t.

According to the latest Westpac-MI Australian consumer sentiment survey for June, confidence levels remain subdued with only a slim majority of Australians currently feeling optimistic.

According to Diana Mousina, Senior Economist at AMP Capital, there’s not one factor but many that is making Australians feel a little uneasy at present.

“There are plenty of negatives weighing on consumer spending,” she says.

“Real wages growth is running flat, the savings ratio is now very low at just 2.1% and debt levels are very high.”

She also says recent property price declines in many parts of Sydney and Melbourne could also explain the current mindset of households in the eastern states.

“The risks associated with lower home price growth needs to be watched closely over the next few months,” she says, adding that proposed income tax cuts from the government are not large enough to change this outlook.

As seen in the chart below from AMP Capital, subdued confidence levels are also reflected in household investment intentions with the vast majority of respondents in the Westpac survey indicating that the wisest way to use new savings is to pay off debt or save.

AMP Capital

In contrast, those nominating real estate as the wisest place for investment remains near the lowest level on record. Investment intentions into shares and superannuation also remain well below the levels seen in prior years.

It indicates that despite all the positives, households remain nervous and risk averse.

“It is difficult to see households gaining confidence to run down their savings rate further in the current environment of low wages growth, slowing wealth accumulation as home price growth weakens and high debt levels,” Mousina says.

“We remain cautious on the outlook for the consumer.”

She expects recent consumer trends will likely continue in the period ahead, which, along with continued weakness in inflationary pressures, will keep official interest rates from the Reserve Bank unchanged until early 2020.

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