Australia, you’re a confident bunch. Teflon-like with your ability to let economic negatives slide.
Despite turmoil across financial markets and headlines spelling doom and gloom as a result of last week’s UK Brexit vote, the latest ANZ-Roy Morgan consumer confidence index barely flinched last week, falling by a modest 1.7%.
This, of course, after hitting a two-year high in the previous week.
The index now sits at 116.8, still 4 points above the series long-run average. A remarkable outcome in anyone’s language.
According to ANZ, the comparatively small decline was driven by a deterioration in views towards the economic outlook.
“The indicator ‘economic conditions in the next 12 months’ dropped a sharp 9%, while views towards ‘economic conditions in the next 5 years’ eased only marginally, down 0.9%,” said the bank.
Bucking the enormous selloff in financial markets seen last Friday, something that coincided when the survey results were being collated, ANZ notes that consumers remained relatively upbeat about their own finances.
“The indicator on ‘finances compared to a year ago’ declined 2.3%, only partially unwinding the spike over the previous week, while views towards ‘finances in the next 12 months’ actually rose 2.7%.”
Given the relationship between the latter and movements in interest rates, one can’t help but think that consumers may be adopting the view that the financial market turmoil sparked by the Brexit vote may see the RBA deliver a further rate cut in the months ahead.
Certainly that’s what the majority of economists and those in markets currently expect.
The final component of the survey, whether now was a good time to buy a major household item, fell fractionally, demonstrating that recent events have had little impact on expected spending levels, at least not yet.
Felicity Emmett, ANZ’s head of Australian economics, put the robust result down to confidence in the domestic economy.
“The strength in confidence reflects the solid momentum in Australia’s economy,” she says.
“The improvement in the labour market is likely to be a key factor behind the recent improvement in confidence, in addition to low interest rates and the ongoing strength in the housing market which are supporting households’ healthy assessment of their own finances.
“The turmoil in financial markets and concerns over the global economic outlook — spurred by the UK’s decision to leave the EU — have not (at least not yet) significantly affected Australian consumers.”
While recent developments have barely registered with consumers, Emmett warns that prolonged uncertainty over the outlook for the global economy could take a greater toll on confidence should it persist.
“As a small open economy Australia remains vulnerable to the fortunes of the global economy,” says Emmett. “Global volatility is the biggest driver of local uncertainty, and with our measure of uncertainty picking up sharply recently we will be closely monitoring further developments in confidence.”