Australian Consumer Confidence Drops To Recessionary Levels
The percentage of respondents who expect good times for the economy over the next five years dropped to 10%.
The percentage of respondents who expect good times for the economy over the next five years dropped to 10%.
Australian consumer confidence dropped 7.6% last week to the lowest levels since the economy experienced a damaging recession at the start of the 1990s, according to a survey by ANZ Bank and pollster Roy Morgan.
ANZ head of Australian economics David Plank said news of a 50 basis-point rise in official interest rates by the Reserve Bank of Australia last week surprised many and sharply dented confidence.
Confidence is at its lowest since early April 2020, during the early stages of the Covid-19 pandemic. Outside of the pandemic, consumer confidence hasn’t been this low since January 1991, the midst of the early 1990s recession, Mr Plank added.
Reflecting the dire state of sentiment, the percentage of respondents who expect good times for the economy over the next five years dropped to 10%, its lowest level on record, he said.
So far this year household spending has been resilient despite the softness in consumer confidence. The RBA, for one, will be looking closely to see whether this divergence can continue, Mr Plank added.
Weekly inflation expectations decreased 0.1 percentage point to 5.6%, while its four-week moving average was unchanged at 5.5%, the survey showed.
Sentiment around current financial conditions dropped 1.0%, while future financial conditions fell 10.1%. Current economic conditions declined 7.2% after a 9.4% loss the week before. Future economic conditions were down 4.6%, according to the survey.
Consumers also reported a 14.4% drop in their willingness to buy a major household item.
The weekly ANZ-Roy Morgan Australian Consumer Confidence Rating is based on 1,454 interviews conducted online and over the telephone during the week to Sunday.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: June 15, 2022.
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It’s a slow start for 2024 but the longer term outlook for the local economy is strong
The International Monetary Fund (IMF) has described the global economy as “surprisingly resilient” amid rapid interest rate rises to quell high inflation since 2022, post-pandemic supply chain disruptions, a short-term spike in energy prices due to the war in Ukraine and increased geopolitical tensions involving China and the Middle East.
The IMF’s biannual World Economic Outlook report says the world has so far avoided stagflation and recession, with large pandemic savings enabling households to cope with higher rates and inflation, and strong immigration in advanced economies creating unusually tight labour markets.
IMF economic counsellor Pierre-Olivier Gourinchas said most indicators point to a soft landing for the global economy and the IMG now expects “less economic scarring from the pandemic”. He noted that markets had reacted exuberantly in recent weeks to the prospect of central banks lowering interest rates soon.
However, the IMF says global growth will moderate over the next five years to its lowest level in decades. It projects 3.2 percent global growth in 2024 and 2025, the same pace as 2023, with still-high borrowing costs, the withdrawal of fiscal support and weak productivity growth weighing economic activity down.
Australia is expected to underperform other advanced economies, especially the United States, this year but will surge beyond them from 2025. The IMF predicts annual gross domestic product (GDP) growth of 1.5 percent in Australia in 2024, which is well below our long-term pre-pandemic average of 2.5 percent. The US is expected to book above-average growth of 2.7 percent in 2024 and the world’s advanced economies are tipped to average 1.7 percent growth.
Australian economic growth will then move above other advanced economies and maintain upward momentum through til 2029. The IMF predicts 2 percent GDP growth for Australia in 2025 and 2.3 percent in 2029. For the US, the IMF expects 1.9 percent growth in 2025 and 2.1 percent in 2029. For the advanced economies in aggregate, the IMF forecasts 1.8 percent growth in 2025 and 1.7 percent in 2029.
The IMF said higher interest rates had had less effect on the US economy compared to Australia because most US mortgages are on long-term fixed rates and household debt has been lower since the global financial crisis. In Australia, most loans are on variable rates and therefore immediately impacted by every rate rise, household debt is high, and housing supply is restricted.
“The exceptional recent performance of the United States is certainly impressive and a major driver of global growth, but it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability,” said Mr Gourinchas.
An example of unusual fiscal policy is the Inflation Reduction Act, which includes US$369 billion in new spending to encourage green energy investment. “This raises short-term risks to the disinflation process, as well as longer-term fiscal and financial stability risks for the global economy since it risks pushing up global funding costs,” he said.
While things are going well now, Mr Gourinchas said risks to global economic progress remain.
“On the downside, new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Gaza and Israel, could, along with persistent core inflation where labour markets are still tight, raise interest rate expectations and reduce asset prices. A divergence in disinflation speeds among major economies could also cause currency movements that put financial sectors under pressure.”
Mr Gourinchas said growth in China could falter, hurting trading partners, without a comprehensive response to its property sector downturn. “Domestic demand will remain lacklustre for some time unless strong measures and reforms address the root cause. Public debt dynamics are also of concern, especially if the property crisis morphs into a local public finance crisis.”
He also noted that weak productivity growth remains a challenge for the whole world and “much hope rests on artificial intelligence delivering strong productivity gains in the medium term”.
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