SYDNEY – Australia’s consumer sentiment remained deeply pessimistic and business confidence turned negative for the first time in 2022 as rapid-fire interest rate increases dragged on the economy.
Consumer sentiment rose 3 per cent to 80.3 in December, recovering from a 2½-year low, while pessimists easily outweighed optimists, Westpac Banking said on Tuesday.
Separate data from the National Australia Bank (NAB) showed business confidence fell to minus 4 in November after holding above zero since December 2021.
Consumer and business sentiment are beginning to converge after an extended split while the Reserve Bank of Australia (RBA) delivered its sharpest tightening cycle in 33 years to counter surging prices.
Companies remained positive for a period even as the rising cost of living and higher mortgage repayments hurt households.
NAB data showed business conditions – measuring hiring, sales and profits – fell 2 points to 20. The gap between confidence and conditions is now at a record outside of the beginning of the pandemic, according to NAB chief economist Alan Oster.
The divergence points to “heightened concerns about the resilience of the economy in the period ahead as inflation and higher rates begin to weigh on consumers”, he said.
Economists expect a sharp slowdown in the economy, driven by an expected weakening of household spending as the full effects of the RBA’s rate hikes take hold.
The central bank has raised rates by 3 percentage points since May and economists predict it will hike another one or two times for a terminal rate of 3.6 per cent.
There are early signs that households are acting on that sentiment – figures from Commonwealth Bank of Australia on Tuesday showed its household consumption intentions index rose 3.2 per cent in November from a year earlier, down from a peak of 15.2 per cent in August.
“Consumer risk aversion remains intense more generally,” said Westpac chief economist Bill Evans.
“The December survey results show inflation concerns remain high among consumers and are not abating despite higher interest rates and a deteriorating economic outlook.” BLOOMBERG
