Consumer confidence is continuing to fall, with Westpac’s consumer sentiment index dropping a further 5.7% in June from 108.0 to 101.9.
Following May’s 7% drop, the cumulative 12.7% fall in the index, represents the largest two month fall since March 2008 in the height of the global financial crisis.
While the fall in May was largely due to the Reserve Bank’s third consecutive rate rise, June’s decline in sentiment reflects a mixture of concerns about financial market turmoil, deteriorating conditions abroad and uncertainty around the Government’s controversial proposed Resource Super Profits Tax.
“With the Bank leaving rates on hold in June, the decline in sentiment this month may not be due to rates,” Westpac senior economist Matthew Hassan said in a statement.
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Hassan says concerns about international economic conditions were heightened.
“This category registered its highest unfavourable assessment since the end of the global financial crisis and, apart from the readings in the depth of the crisis, the highest unfavourable prints since September 2005.”
“Reasons for concerns with the global economy can be best exemplified by the 6.2% fall in the sharemarket and 7.5c fall in the AUD since the last survey – both following substantial declines over the previous month,” he says.
But the spending intentions of Australians remained resilient, with people’s perceptions of a good ‘time to buy’ bouncing back.
‘Time to buy a dwelling’ rebounded 7.3% from a huge 15.4% slump in May and ‘time to buy a car’ bounced back 1.6% from a 6.4% fall last month.
Hassan believes that rates will remain on hold following the next RBA meeting on July 6, despite some inflation pressures building due to limited space capacity in labour and housing markets.
He says the next significant meeting will be on August 3, when the Board will have received an update on inflation.
“The Bank is also forecasting above trend growth in 2011 and 2012,” he says. “However this survey does highlight the impact of financial market turmoil on the confidence of households.”
“If this turmoil persists over the next two months, the Board will have a very difficult decision if the new inflation data points to further rising inflation pressures.”