Australia | Oct 08 2008
By Chris Shaw
As global financial markets continue the process of drip feeding bad news into the public domain, CommSec equities economist Savanth Sebastian expects consumer to eventually be worn out from trying to deal with it all, which helps explain the sharp downturn in Australian consumer confidence figures released today.
Sebastian notes consumer confidence in October (the survey was conducted last weekend so was prior to yesterday’s rate cut by the Reserve Bank of Australia) recorded an 11% decline to a reading of 82, not far from the 17-year low of 79 recorded in July.
The number reflects the impact on sentiment of the worsening outlook for equity markets, superannuation and retirement savings. He suggests these will continue to impact on consumer spending decisions in coming months and so, in his view, supports the rate cut decision made by the RBA yesterday.
Also supportive of the need to cut rates was today’s housing finance data, which showed a 2.2% decline in total housing finance to owner-occupiers. As Westpac senior economist Andrew Hanlan notes, the data means new lending in Australia for housing has fallen by 28% since January, as higher interest rates mean people are holding off from entering the property market.
The data was lower than the market had expected, as Hanlan notes the market had been expecting a decline of 1.3%, while Savanth points out the data matches the weakest numbers of the past 13 years. But as TD Securities senior strategist Joshua Williamson notes the RBA action yesterday to cut rates means sentiment may well improve, meaning there is scope for a recovery in both numbers in coming months.
ANZ Banking Group head of property and financial systems analysis Paul Braddick agrees, suggesting the subsequent falls in interest rates, tax cuts and lower fuel prices will provide support to the housing market going forward.
In Savanth’s view, the fact investment markets and fuel prices remain volatile means consumers know they must be more cautious in the current environment, but additional subsequent rate cuts are likely to give them increased confidence in the future.
There may not be long to wait for such action, as he expects that RBA will cut rates by a further 0.50% in November, while Hanlan sees a further 1.0% coming off rates in coming months. Though he cautions such a cut by the RBA may generate a relatively smaller boost to housing finance demand than in current cycles.