Australian consumer confidence is tumbling before the federal budget

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Australian consumer confidence fell heavily last week, dragged down by renewed pessimism towards the economic outlook.

The ANZ-Roy Morgan consumer confidence index fell by 3.5% to 111.7, leaving the index below its long-run average of 112.7. It was also the fifth fall in the past six weeks, and unwound all the increase recorded in the prior corresponding week.

Four of the five survey subindices fell during the week, suggesting that the weakness in the headline reading was broad-based in nature.

Perceptions towards the economic outlook, both looking one and five years ahead, slid by more than 5% while views on current personal finances slid by a smaller 3.3%.

Indicating that increased nervousness among households may be hindering spending, the measure on whether now was a good time to buy a major household item dropped 4.6%.

The only subindex to register an improvement was personal finances in the year ahead which gained a modest 1.3%.

Felicity Emmett, ANZ’s head of Australian economics, called the result “disappointing”, noting that there was no obvious catalyst to explain the sharp reversal in sentiment.

“It is disappointing to see consumer confidence fail to hold onto the previous week’s gain, particularly as there was no obvious trigger for the reversal,” said Emmett.

“It is not clear what drove confidence lower, but it seems that a quiet data week, even in the absence of negative news, was not enough to keep sentiment elevated. This highlights how fragile consumer confidence is, particularly around the economic outlook.”

With less than a week to go before Australian treasurer Scott Morrison steps up to deliver the 2016/17 federal budget, Emmett believes the news flow around the budget will be highly influential on confidence levels in the short-term.

“In recent years, the Budget has had the most notable impact on consumers views towards the economy. We don’t expect any significant policy surprises that will hit households’ pockets, suggesting that any impact on confidence may be temporary.”

Even if that eventuates, the slide in confidence last week demonstrates the need for a confidence-building budget, something that will encourage rather than hinder spending given the need for it to remain strong to combat the effects of the unwinding mining investment boom.

Over to you, treasurer.

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