Confidence in Australia's economic outlook collapsed after last week's GDP report

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Australian consumer confidence slumped last week, led by a collapse in sentiment towards the near-term economic outlook following the release of Australia’s GDP report that revealed economic growth contracted at the fastest pace seen since the GFC in the September quarter.

And there are signs that may impact household consumption in the period ahead, not ideal given it’s the largest part of the Australian economy.

The ANZ-Roy Morgan consumer confidence index slid by 4.4% to 113.4, leaving it at the lowest level seen since May. It now sits fractionally above its long-run average of 112.8.

Jo Masters, senior economist at ANZ, pinned the slump squarely on last week’s “shockingly weak” GDP report.

“It is not surprising to see a sharp fall in consumer confidence after the shockingly weak Q3 GDP result, which clearly hit confidence in the near term economic outlook,” she said.

According to ANZ, the subindex measuring sentiment towards the economy in the year ahead tumbled by 11.7%, leaving it at the lowest level seen since February.

That was a period when investors worldwide were concerned about a potential economic implosion in the world’s second largest economy, China.

While sentiment towards the near-term outlook plummeted, Masters’ says that there was better news on the longer-term economic outlook with the subindex falling only 1.7% from a week earlier, a result she described as “encouraging”.

Mirroring the decline in economic sentiment, the subindices measuring household finances also fell, albeit by a smaller margin.

“Households’ views towards their finances compared to a year ago edged down 0.7%, while households’ views towards their future finances slipped 2.1%,” said Masters, noting that both remain well above their long run averages.

However, there was a significant drop in the final subindex within the survey — whether now was a time to buy a major household item — which slid by 6.2%, leaving it at the lowest level seen since January.

Not ideal news for household spending ahead of the Christmas and Boxing Day sales.

However, Masters, like others, doesn’t think that the weakness in the GDP report will continue in the current quarter, offering hope that the plunge in confidence last week could easily rebound heading into 2017.

“The recent pickup in retail sales, combined with still-elevated confidence around future finances, suggests consumer spending will likely improve in Q4,” she says. “Moreover, higher commodity prices should support profits, and non-mining investment in New South Wales and Victoria is strengthening.”

However, she cautions that there is potential for further near-term weakness in confidence levels, citing this week’s Australian jobs report for November as a key event to watch.

“The labour market report on Thursday has the potential to impact consumer confidence this week,” says Masters. “We are expecting solid employment growth in November, but confidence is vulnerable to a weaker than expected report.”

Adding increased impetus to this jobs report, the ABS will release quarterly underemployment and underutilisation figures, an area of focus for the RBA given heightened levels of labour market slack has contributed to wage growth hitting the lowest levels on record in 2016.

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