Consumer confidence hit by global turmoil

Consumers were impacted by “the spate of negative news on the international front and the spillover effect on financial markets,” said Westpac’s chief economist. Photo: Gabriele CharotteGlobal market turmoil has hit Australian consumer confidence, with a fall in Westpac’s monthly index confirming a marked drop in sentiment.


The Westpac Melbourne Institute Index of Consumer Sentiment fell by 3.5 per cent in January from 100.8 in December to 97.3 in January.

“The index is at its lowest level since September 2015, but remains 4.3 per cent above its level of a year ago,” said Westpac chief economist Bill Evans.

Consumers were impacted by “the spate of negative news on the international front and the spillover effect on financial markets,” he said.

Vivian Jiang, from Citi Research, noted it was the first time the index had fallen below the 100 mark – indicating neutral sentiment –  since November 2015.

All subcategories except one dropped in January.

The largest drop was how family finances compared to one year ago (down 9.4 per cent), the lowest level since last July.

This was followed by the assessment of current economic conditions (down 5.1 per cent) and how the economy would be performing one year from now (down 5.0 per cent).

Economy five years ahead gained for the month (up 0.3 per cent) but only after a large fall in December.

Mr Evans said the spate of negative news from international markets had been flowing through to consumers.

“Over the two weeks to the end of the survey, the oil price has fallen by 20 per cent,” he said.”Over the same period, the Australian share market has fallen by 7.6 per cent and the US market by eight per cent.”

China’s volatile sharemarket was down by around 15 per cent since the beginning of 2016, which had sent the Australian dollar plummeting to 69 US cents, from 73 US cents, Mr Evans said.

“Not surprisingly, these concerns have weighed most heavily on how respondents assess their own financial position,” he said.

One good piece of news was the sharp 13.9 per cent increase in the “time to buy a dwelling” index to 113.0 in January from 99.2 the month before.

It is the highest reading for this index since May last year, and now only 1.4 per cent below its level for January 2015.

“The sharp increase will reflect some seasonality but the move is so large that we can only conclude that this print may be signalling some improving optimism in the housing market,” Mr Evans said.

He pointed to a “sharp improvement” in NSW, which has regularly posted the weakest readings amongst the states in recent times.

“For this reason it is best to be cautious but nevertheless encouraged by this result,” Mr Evans said.

Retail Council chief executive Anna McPhee said concerns over China and the sharemarket had weighed on the reading. “The consumer sentiment reading shows the momentum of rising consumer sentiment experienced in the final months of 2015 have not continued into January with the likely impact of this fall attributed to slowing of the Chinese economy and recent sharemarket volatility.

“The index is 4.3 per cent higher than a year ago and despite monthly volatility, is consistent with growth in consumer activity that retail is currently experiencing.”

The Westpac figure confirms the sentiment reported in the ANZ-Roy Morgan weekly consumer confidence index, released Tuesday. That index declined by 0.8 per cent in the week ending 17 January, following a 1.9 per cent fall in the previous week.

Further losses on the share market amid ongoing concerns around China’s economic growth prospects are likely to have weighed on confidence, said the bank.

“Consumer confidence fell a modest 0.8 per cent last week, leaving levels just a tick (0.4 per cent) above their long run average,” said ANZ co-head of Australian Economics, Felicity Emmett. “This follows a dip in the previous week which was likely driven by news flow on global financial market volatility and concerns over China’s economic growth.”