Australia consumer sentiment worsens sharply in Feb - Westpac

By Ambar Warrick

Investing.com -- Australian consumer sentiment deteriorated in early-February, a private survey showed on Tuesday, as elevated inflation and the prospect of more pressure from interest rate hikes saw consumers turn sour on the economy.

The Westpac-Melbourne Institute Consumer Sentiment index tumbled 6.9% in February to near historic lows, cutting short a mild recovery over the past two months.

The biggest drivers of the fall in sentiment were the bigger-than-expected inflation jump in the fourth quarter, as well as the Reserve Bank of Australia’s resumption of its rate hike cycle, Westpac said in a statement.

Australian consumer sentiment was back at levels seen during the 2008 financial crisis, and only a hair above lows hit during the 2020 COVID pandemic.

The reading reflects the increased economic headwinds faced by Australian consumers, as inflation trends at over 30-year highs and as mortgage costs keep increasing. The RBA had earlier this month hiked interest rates by 25 basis points and flagged more increases due to a dearth of signs that inflation was cooling.

“The consumer sentiment survey continues to give a very clear warning that the pressures bearing down on the consumer are becoming intense. While spending has held up relatively well to date, we expect an abrupt slowdown to show through in coming months,” Matthew Hassan, Senior Economist at Westpac wrote in a note.

Consumer outlook on the economy soured further in February, with a particularly big deterioration in the outlook for family finances. Consumers also see 2023 as a particularly challenging year, Westpac said.

Optimism over the job market remained a sole bright spot among consumers, but even that showed signs of weakening. Australia’s job market ran red hot through 2022, with unemployment staying close to 50-year lows.

Economic growth in Australia is set to slow in the coming months, as a post-COVID boom runs out of steam and as the effects of sharp monetary policy tightening continue to be felt. The RBA recently warned that economic growth and employment will likely deteriorate in the coming months.

The trend is likely to further dent consumer sentiment.