Australians are confident because slower economic growth means there's less chance the RBA will hike rates

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  • Australians are confident about the outlook for the economy and their finances, but are still highly risk averse when it comes to their investment decisions.
  • In terms of where to invest savings, the proportion nominating housing fell to the lowest level in over 40 years. Those favouring shares also fell to multi-year lows.
  • Sentiment was supported last month by easing concerns about the potential for RBA rate increases — that reflects greater concern about Australia’s economic outlook.

Australians are confident about the outlook for the economy and their finances. However, when it comes to their investments, the same cannot be said.

Most are still incredibly cautious, continuing the theme that’s been in place since the GFC. And those fears are getting worse, not better, especially towards the housing market and shares.

“Responses on the ‘wisest place for savings’ suggest risk aversion has intensified,” said Bill Evans, Chief Economist at Westpac Bank, following the release of the latest Westpac-MI Consumer Sentiment report for December today.

“Nearly two thirds of consumers now favour safe options — bank deposits, superannuation or paying down debt. Only 10% favour real estate, a new record low going back to 1974.”

So the property market is clearly on the nose with the vast majority of Australians, likely reflecting widespread expectations that prices in Sydney and Melbourne — having already fallen for over 12 months — are likely to decline further in the year, or years, ahead.

Similarly, sentiment towards shares also took a beating in the latest survey.

“Underscoring the risk averse and uncertain tone only 6% of consumers nominate shares — the lowest proportion for six years — while over 7% of consumers simply said ‘don’t know’, the highest share since 1974,” Evans said.

CBA

Clearly, when it comes to where to invest, the vast majority of respondents remain incredibly risk averse, helping to fuel broader concerns about the outlook for household spending in the year ahead.

Given those results, you’d expect that confidence levels would also be incredibly low.

But here’s the kicker: they aren’t.

Despite obvious concerns about the outlook for major asset classes, sentiment levels are actually improving.

The headline consumer sentiment index actually rose marginally from November, lifting 0.4% to 104.3.

A reading above 100 indicates that optimists outnumber pessimists, an outcome that has now been seen every month over the past year.

“Given the negative atmospherics around falling house prices in Sydney and Melbourne, falling share markets, ongoing concerns around global trade wars and political uncertainty, it is reasonable to question why consumer sentiment has held up so well,” Evans said.

He nominated three specific factors that probably helped to underpin confidence in the latest survey, two of which were driven by increased concern about the outlook for both the Australian and global economy.

The first, a lessening of concerns about interest rate increases from the RBA following a shock slowdown in the Australian economy in the September quarter. The second, plunging petrol prices, partially reflecting growing unease about the global economy following a noticeable deterioration in recent economic data.

The third factor was the only real positive — Australia’s unemployment rate recently falling to six year lows.

While lower unemployment is undoubtedly a good thing, one has to question whether stuttering economic growth, preventing the RBA from lifting rates due to persistently weak wage pressures, is too.

Households with a mortgage certainly thought so last month, completely explaining the headline lift in sentiment. However, should the factors that drove the shift in rate expectations last week be representative of what lies ahead for the economy, that’s unlikely to remain the case.

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