Consumers have given the federal budget a ringing endorsement, with a key gauge of sentiment surging on the back of the Morrison government’s wave of fresh support measures for businesses and households, and expectations the Reserve Bank will follow up with rate cuts on Melbourne Cup day.
“This is an extraordinary result,” Westpac’s chief economist Bill Evans said today as he revealed the monthly Westpac-Melbourne Institute Index of Consumer Sentiment surged 11.9 per cent to 105 in October.
“The Index has now lifted by 32 per cent over the last two months to the highest level since July 2018… (and) is now 10 per cent above the average level in the six months prior to the pandemic.”
Mr Evans said the budget earlier this month was a key driver of the bounce, noting that since 2010 the survey has included a question assessing households’ response to the government’s key annual financial release, which typically showed a majority expected measures to adversely affect their finances. In contrast, consumers appear to have shrugged off the spike in debt and deficits revealed in the budget and welcomed this year’s spending spree, headlined by the bringing forward of $17.8 billion of personal income tax cuts to July 2020 and the temporary instant asset write-offs for 99 per cent of businesses, worth $26.7bn.
“We have never seen a budget response that showed a net positive balance – until now,” Mr Evans said.
“For this budget we saw a net positive balance of 9.5 per cent indicating that a clear majority of respondents assessed that the budget would ’improve their finances’.”
The survey comes as Victorians await an update on Sunday about potential easing of restrictions and ahead of the RBA’s monthly board meeting on November 3, where some economists – including Mr Evans – expect interest rates to be reduced to 0.10 per cent from 0.25 per cent.
Along with the budget, Mr Evans said the nation’s ongoing success in containing COVID-19 and the expectation of rate cuts was behind the spike in consumer sentiment, noting confidence had improved across all states. In addition, confidence in the housing market has “boomed”, the time to buy a dwelling index increasing 10.6 per cent to its highest level since September 2019.
“The most striking improvements were around the outlook for the economy,” he added.
“The ‘economy, next 12 months’ sub-index increased 24 per cent while the ‘economy, next five years’ sub-index was up by 14 per cent…its highest level since August 2010. Respondents are likely to be seeing the Budget as setting a foundation for a sustained lift in Australia’s economic fortunes.”
On Friday, Mr Evans upgraded his forecasts for the economy in the wake of the budget, lifting GDP growth in 2021 rise from 2.5 per cent to 2.8 per cent, and from 2.7 per cent to 3.5 per cent for 2022.
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