Australia: consumer confidence slumps in January

Australia: consumer confidence slumps in January

Australia economic update - January consumer sentiment

Consumer confidence plummeted in January, falling 8.3%m/m (JPMorgan - 2.0%) after rising 1.8%m/m in December.

The Westpac-Melbourne Institute’s consumer sentiment index fell from 112.5 to 103.1, hovering only slightly above a reading of 100 (the neutral level where the number of optimists equals pessimists), and well below the 123.9 record high touched in May.

The deterioration in confidence in January emerged as domestic banks lifted rates on variable mortgages (in the absence of a rise in the official cash rate) to reflect higher market funding costs, and as uncertainty surrounding the outlook for the global economy continued to grow.

Australian banks hiked their rates on variable loans by an average of nearly 15bp in early January in an attempt to alleviate the current pressure on their spreads resulting from higher market funding costs.

The risk of a recession in the US economy, meanwhile, continued to build as economic data fell persistently on the downside of expectations. Still elevated petrol prices and increased volatility in financial markets also dampened consumer sentiment in the January month. All seven components of the consumer index fell in January.

The largest falls were logged in the outlook for the economy in one and five years’ time, down 20.4% and 10.4%, respectively. Expectations also posted a double-digit decline, falling 11.6%. Sentiment toward family finances a year ago (-0.8%) and in the year ahead (-3.1%) slipped, as did sentiment toward buying major household items (-5.4%) and current conditions (-3.3%).

Consumer confidence will likely remain weak near-term amid global growth concerns and speculation that the RBA would hike interest rates in February. JPMorgan expects that the RBA will hike interest rates to 7% next month.

• Consumer sentiment slumped 8.3%m/m in January after rising 1.8% in December.

• The largest decline in sentiment was recorded in the ‘economy one year ahead’ component, down 20.4%m/m.

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