The summer hiatus has been far from quiet.
Locally, bushfires have severely impacted large parts of Australia. Meanwhile, a coronavirus pandemic is shaping as a new shock from abroad.
Even prior to the coronavirus, our latest Westpac–Melbourne Institute Consumer Survey conducted in mid-January showed sentiment had fallen 3.7 per cent to 93.4 in January from 97 in November, marking the weakest start to a year since 2015. As our most recent Red Book showed, it’s not just the devastating bushfires unsettling people – the Reserve Bank’s rate cuts to record lows, a struggling economy and continued pressure on incomes and household balance sheets are taking their toll.
While we don’t yet have any reads on the , we know that the SARS outbreak in 2003 did hit confidence globally, particularly in China. With a lot of moving parts, it’s too early to tell if we’ll see a similar impact. But it’s fair to say our starting point in Australia isn’t ideal following the 1.8 per cent fall in sentiment in January from December, taking the Index firmly into pessimistic territory and at levels only seen a handful of times since 2008-09.
To us, that points to a likely continuation of the weak consumer spending patterns that emerged last year, and we recently lowered our forecast for spending to 1.7 per cent in 2020, about inline with the prior 12 months.
However, there were some positives in the January data.
Perhaps unsurprisingly given the clear turn in the market since mid-last year, housing-related sentiment remains upbeat, pointing to the upturn in prices and activity carrying into 2020. The volatile “time to buy a dwelling” index has firmed to near its long run average, while consumers’ house price expectations surged a further 9.8 per cent over the three months to January, up a staggering 58 per cent in the past year – easily the sharpest resurgence since we began collecting data in 2009.
In another positive, consumers’ labour market fears have still not been realised, the unemployment expectations index falling slightly in January but holding above the long run average.
Nevertheless, the weaker outlook for consumer demand clearly underscores the need for further policy stimulus – both monetary and fiscal, as we’ve been urging for some time.
While policymakers are likely to remain cautious near term – as we saw when the RBA held rates this week as expected – the case for further cuts will be firmly in place by April, with a 25-basis point move expected that month and in August.
This material contains general commentary, and market colour. This material does not constitute investment advice. This information has been prepared without taking account of your objectives, financial situation or needs. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. Except where contrary to law, Westpac and its related entities intend by this notice to exclude liability for this information.