Australia | Apr 08 2009
By Rudi Filapek-Vandyck
The Westpac-Melbourne Institute Index of Consumer Sentiment increased by 8.3% in April from 85.6 in March to 92.7 in April
Westpac economists label the April read as “a surprisingly strong result”. The Index fell by 0.2% in March, but this small decline occurred in the face of a barrage of disturbing domestic and international news including the Australian economy being widely reported to be in recession, the economists point out. This month, on the other hand, there has been more positive economic information.
Also, remark the economists, past experiences have shown that generally Australians respond positively to a rising Australian dollar.
Despite this encouraging news, Westpac economists believe a further positive response to the government’s fiscal stimulus package is likely to be buoying consumers, and thus media coverage of the Rudd government’s cash payout is likely to be responsible for the noticeable uptick in overall sentiment.
It is for this reason the Westpac economists believe it would be premature to argue the Index has now passed its lows in this cycle. They note in the early stages of the last recession the Index also appeared to have recovered from its lows. The average for the 6 month period November 1989-April 1990 was 4.3% above the average for the previous 6 month period. However, the average for the following 6 month period (May 1990-October 1990) plunged to 15.1% below that level. That period coincided with the first half of the 12 month period when Australians saw the most rapid increase in the unemployment rate during the last recession when it increased from 5.9% (March 1990) to 9.4% (April 1991).
This time around, and given the disturbing signals from all the leading employment indicators which are pointing to a rapid increase in the unemployment rate over the next 18 months, Westpac economists believe the Index is likely to yet head for new lows.
Anticipation of the cash payments is likely to be a key factor behind the surge in consumers’ assessments of their financial position. Their assessment relative to a year ago increased by 10.8% while expectations for the next year were up by 11.8%.
Expectations for economic conditions over the next 12 months also increased by 16.9% although the level of that component is still 17.2% below its level a year ago and almost 50% below its level of two years ago. The outlook for economic conditions over the next five years improved by 4% while opinions on whether now is a good time to buy a major household item increased by 3.1%.
Westpac suggests the Reserve Bank of Australia is now likely to remain on hold until around August, “when rate cuts will be needed to deal with a more concerning global and domestic economic environment”.