Consumer confidence at its lowest in Australia since 1990s recession
High interest rates and the cost-of-living crisis are creating a gloomy outlook among many
High interest rates and the cost-of-living crisis are creating a gloomy outlook among many
Consumer confidence fell in January to its lowest level for the first month of a new year since the 1990s recession. The Westpac-Melbourne Institute Consumer Sentiment Index fell 1.3 percent to 81 points. Westpac senior economist Matthew Hassan said this reading was in the bottom 7 percent of all sentiment measures ever recorded since the survey began in the mid-1970s.
“For consumers, the new year looks to have picked up where the old one left off: cost of living and high interest rates continuing to dominate and sentiment bumping around deeply pessimistic levels,” Mr Hassan said. “The continued weak reads on sentiment show Australian consumers remain under intense pressure as the surging cost of living, materially higher interest rates and rising tax take weigh heavily on incomes.”
The sub-indexes measuring consumers’ outlook for the economy and their personal finances in 2024 remained “materially below long-term averages”. Mr Hassan said there was a further deterioration in family finances this month.
“The ‘finances compared to a year ago’ sub-index dropped 7.6 percent to 63, unwinding most of the 11 percent improvement seen over the three months to December. Those in low- and middle-income brackets reported the biggest deterioration in the month.”
Australians are also worried about the medium to long-term prospects for the economy. Consumers’ five-year outlook on the economy fell 6.1 percent to 89.1 points, with young renters driving this fall.
Just over half of the 1,200 people who participated in the survey said they expected interest rate rises to continue in 2024. This is down from 60 percent in December and follows the lower monthly inflation reading of 4.3 percent in November, as well as expectations in the United States that the Federal Reserve will begin cutting interest rates in the world’s biggest economy this year.
Mr Hassan commented that Australian consumers are much more ‘hawkish’ on rates than the financial markets and economists. “While just over half of consumers expect mortgage rates to rise, futures markets are currently pricing in 50bps in cuts by year-end, with three out of four economists also expecting the cash rate to move lower,” he said.
Housing-related sentiment continued to show “a stark gap between buyer sentiment and price expectations”, Mr Hassan noted. The ‘time to buy a dwelling’ sub-index fell 3.1 percent to 72 points, which is considered very weak. More than two-thirds of consumers expect house prices to rise in 2024. This follows a surprising 8.6 percent lift in the national median house price in 2023, according to CoreLogic data.
This price growth was largely due to fewer homes for sale, more cash buyers at the market’s upper end, greater demand in cheaper suburbs, which resulted in strong price growth, and increased first home buyer activity facilitated by the Bank of Mum and Dad and the expanded First Home Guarantee scheme.
Looking ahead, the December quarterly inflation read to be released by the Bureau of Statistics on 31 January will be critical to the Reserve Bank’s next interest rate decision on 6 February, said Mr Hassan.
“On balance, we expect the RBA to leave rates unchanged in February, and to be unlikely to raise rates further from here,” he said. “However, a material upside surprise on inflation would make for a more finely balanced decision.”
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Continued stagflation and cost of living pressures are causing couples to think twice about starting a family, new data has revealed, with long term impacts expected
Australia is in the midst of a ‘baby recession’ with preliminary estimates showing the number of births in 2023 fell by more than four percent to the lowest level since 2006, according to KPMG. The consultancy firm says this reflects the impact of cost-of-living pressures on the feasibility of younger Australians starting a family.
KPMG estimates that 289,100 babies were born in 2023. This compares to 300,684 babies in 2022 and 309,996 in 2021, according to the Australian Bureau of Statistics (ABS). KPMG urban economist Terry Rawnsley said weak economic growth often leads to a reduced number of births. In 2023, ABS data shows gross domestic product (GDP) fell to 1.5 percent. Despite the population growing by 2.5 percent in 2023, GDP on a per capita basis went into negative territory, down one percent over the 12 months.
“Birth rates provide insight into long-term population growth as well as the current confidence of Australian families,” said Mr Rawnsley. “We haven’t seen such a sharp drop in births in Australia since the period of economic stagflation in the 1970s, which coincided with the initial widespread adoption of the contraceptive pill.”
Mr Rawnsley said many Australian couples delayed starting a family while the pandemic played out in 2020. The number of births fell from 305,832 in 2019 to 294,369 in 2020. Then in 2021, strong employment and vast amounts of stimulus money, along with high household savings due to lockdowns, gave couples better financial means to have a baby. This led to a rebound in births.
However, the re-opening of the global economy in 2022 led to soaring inflation. By the start of 2023, the Australian consumer price index (CPI) had risen to its highest level since 1990 at 7.8 percent per annum. By that stage, the Reserve Bank had already commenced an aggressive rate-hiking strategy to fight inflation and had raised the cash rate every month between May and December 2022.
Five more rate hikes during 2023 put further pressure on couples with mortgages and put the brakes on family formation. “This combination of the pandemic and rapid economic changes explains the spike and subsequent sharp decline in birth rates we have observed over the past four years,” Mr Rawnsley said.
The impact of high costs of living on couples’ decision to have a baby is highlighted in births data for the capital cities. KPMG estimates there were 60,860 births in Sydney in 2023, down 8.6 percent from 2019. There were 56,270 births in Melbourne, down 7.3 percent. In Perth, there were 25,020 births, down 6 percent, while in Brisbane there were 30,250 births, down 4.3 percent. Canberra was the only capital city where there was no fall in the number of births in 2023 compared to 2019.
“CPI growth in Canberra has been slightly subdued compared to that in other major cities, and the economic outlook has remained strong,” Mr Rawnsley said. “This means families have not been hurting as much as those in other capital cities, and in turn, we’ve seen a stabilisation of births in the ACT.”
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