Intergenerational report knocks consumer confidence to its lowest level in 3 months

Getty/Rich Lam

Perhaps the release of the intergenerational report (IGR) by Treasurer Joe Hockey last week didn’t go as well as first thought with concerns about the future knocking consumer confidence.

The ANZ-Roy Morgan Weekly Consumer Confidence index fell 2% to 110.3 last week. That’s the weakest level in 3 months. The ANZ says it was likely the “newsflow around the long-term Federal government budget outlook (spurred by the release of the Intergenerational Report)” which drove the fall.

The data certainly supports this hypothesis with a 1.7% fall in the economic outlook over the next year and a 5.9% drop in the economic outlook over the next 5 years. The ANZ said that both these subindices are at historically “subdued” levels. Also weighing on confidence was a 2% decline in household finances over the next year.

Explaining the deterioration in consumer confidence and its continued fragility ANZ Chief Economist Warren Hogan said:

Consumers continue to show an asymmetric response to newsflow.

Over the last year or so, there have been sizable declines in consumer confidence in relation to any negative news around the Federal budget and economy, while potentially positive catalysts, such as the interest rate cut, lower petrol prices and higher asset prices have only really worked to offset the negatives.

We suspect that elevated levels of uncertainty about the economic outlook are causing consumers to be unusually sensitive to negative newsflow and this is weighing on confidence.

Hogan is spot on the money.

Last year confidence collapsed because of what was considered a tough budget. The IGR seeks to justify and reinforce the need for toughness and so has simply increased uncertainty for Australian Households about the future. The government will need to be careful when framing this year’s budget that it doesn’t score another own goal and knock confidence and the economy for six.

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