Weak economic growth has Australians worried

Andrew Savulich/NY Daily News Archive via Getty Images
  • Australian consumer sentiment tanked in March, falling by the most in over three years.
  • Weak Australian economic growth in the second half of last year, along with falling home prices and expectations that unemployment will rise in the year ahead, drove the steep decline.
  • Views towards Australian home prices fell to record lows.
  • In terms of where to invest, Australians are now more risk adverse than during the height of the GFC.

Australian consumer sentiment tumbled in March, logging the largest decline since late 2015.

The Westpac-MI index slumped 4.8% to 98.8, leaving it at the lowest level since September 2017. Australia’s weak Q4 economic growth was likely to blame.

A reading below 100 indicates that pessimists outnumbered optimists in the latest survey.

Westpac Bank

“The main development over the last month was the December quarter national accounts update that showed Australia’s economic growth slowing to a 1% annual pace over the second half of 2018, widely described as a ‘per capita recession’ in media coverage,” said Matthew Hassan, Senior Economist at Westpac.

“The survey detail indicates that this had a significant negative impact on confidence.”

Hassan said the timing of the survey reinforced this point, noting that respondents before the GDP report were substantially more optimistic than those after the national accounts were released.

“Those collected before the March 6 release had a combined index read of 100.7,” he said. “Those collected after the release had a combined read of 92.7, an 8% fall.”

So plenty of people were paying attention to the GDP report, even though talk of a potential per capita recession was already widespread based on the partial GDP inputs that had been received.

Unsurprisingly, views towards the Australian economy in the years ahead took a beating in the March survey. Looking a year ahead, sentiment slid by 6.9%. Longer-term confidence also skidded by 5.5%.

Sentiment towards family finances also fell sharply with current conditions sliding 5.6% while those looking 12 months ahead slumped by a larger 5.9%.

In New South Wales and Victoria — where home prices have fallen the fastest of any Australian capital city over the past year — views on finances in the year ahead tumbled by 11% and 9% respectively, larger than the national average.

The final component in the survey — whether now was a good time to buy a major household item — also softened by 0.6%, leaving it well below historic norms.


Hassan said the breakdown of the latest survey suggests the downturn in Australia’s housing market was another factor that contributed to the unusually large fall in sentiment.

“Australia’s housing market downturn — a key factor in the disappointing December quarter growth figures — also looks to have had a more direct impact on sentiment,” he said.

“Consumers in Sydney, which has seen the largest house price declines over the last 18 months, recorded a sharp 10% fall in sentiment.

“Those working as labourers or operators also recorded a particularly sharp 14% decline, likely reflecting the significant weakening in dwelling construction.”

Views on the outlook for home prices continued to weaken, falling to the lowest level since the question was first asked in 2009. However, while views towards prices remained bleak, recent price falls saw sentiment towards whether now was a good time to buy lift to 116.6, a four-year high.

“Improving affordability continues to see a lift in buyer sentiment in New South Wales and Victoria, although there still looks to be some way to go on affordability before buyer sentiment returns to ‘normal’ levels,” Hassan said.

With home prices continuing to fall and concern about the economy growing, views on the outlook for Australia’s unemployment rate also deteriorated sharply with the survey’s unemployment expectations index jumping 8.9% to 130.6, the highest level in 18 months.

A higher reading indicates that more Australians think unemployment will increase in the year ahead.

Given increased concern about the economy, household finances and unemployment in the year ahead, survey respondents turned even more cautious on the best place to put new savings, indicating even more risk aversion than at the height of the GFC.

“Over two thirds of consumers now favour safe options such as bank deposits, superannuation or paying down debt,” Hassan said.

“Only 9% favour real estate, a new record low going back to 1974, while only 8% nominate shares.

“The mix is more risk averse than at the height of the global financial crisis in 2008 and highlights the risk that a move by households to increase savings rates could further undermine consumer demand.”

Like an increasing number of forecasters, Westpac expects that household spending — the largest part of the Australian economy at around 55% — will remain weak this year, an outcome that it expects will see the RBA cut rates not once but twice before the year is out.

Many other forecasters have also adopted this view, especially since Australia’s GDP report was released last week. Financial markets have also priced in a full 25 basis point cut, with the risk of another, by the end of this year.

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