Consumer sentiment has been hit hard by the budget with the Westpac monthly index down more than 6% from pre-budget levels and the weekly ANZ-Roy Morgan index down 11% since budget leaks began.
It’s a worrying situation for an economy in transition which needs stronger domestic growth to balance out the lower contribution from the mining sector to overall growth in the quarters ahead.
But Westpac says that while “last month’s Budget continues to cast a long shadow over the consumer…sentiment more generally is at pessimistic rather than dire levels”.
They highlight that the reading of 93.2 for consumer sentiment is “0.75 standard deviations below average. To put it another way, just over one in every five readings since the mid-70s has been lower than this.”
Indeed, while this sort of fall in sentiment is concerning, Westpac says:
A reading in the low 90s is not a recessionary one – that would require a further drop well into the low 80s – but it does signal a material weakening. And the longer that sentiment remains at these levels, the more likely it will translate into a more pronounced slowdown in spending.
For the moment however, Westpac is “prepared to give consumers the benefit of the doubt. To us, there still looks to be an over-reaction in the May and Jun readings that will dissipate over time”.