It is a touch ironic that as New Zealand sees signs of economic improvement, attested to by rising retail sales and consumer confidence, record numbers of Kiwis are moving to Australia just as economic indicators there turn sharply down.
Australian consumer sentiment has recently moved into pessimistic territory, falling by 8.3% in July, to the lowest level in two years. Measures of current and expected family finances highlight the level of concern amongst households.
Given the impact of the last interest rate rise in November, continual softening in consumer sentiment isn’t surprising. However, what is surprising is the speed of deterioration in consumer sentiment.
The consumer data is consistent with recent weakness in retail sales and findings from multiple surveys of business conditions. The NAB monthly business survey for June, for example, shows that retail trading conditions are as weak as they were at the beginning of the GFC.
For the RBA, this underlines the failure so far of the mining boom to benefit the rest of the economy. And while the final release of the carbon tax details provides some certainty, this will not boost confidence.
What will it take to turn consumer confidence around?
The last two times that confidence was this low for an extended period (the global downturns of 2000 and 2008) it took policy stimulus — a rate cut or government spending — to boost sentiment. This time, however, government spending is being cut back. The RBA does not appear keen to drive consumer spending via lower interest rates, but this position will surely need to change sometime soon.