Westpac survey results signal growing sense of ‘helplessness’ while Jim Chalmers faces growing pressure to rein in spending
Confidence among mortgaged households has crashed to its lowest level in more than three decades amid a growing sense of “helplessness” about the economy, even as a dramatic shift in financial markets suggests there is now a strong chance of a Reserve Bank rate cut by this time next year.
The latest Westpac survey showed its consumer sentiment index sinking again in November to reach a four-year low, amid deepening pessimism about the near-term prospects for the economy.
As Labor comes under increasing pressure over persistent cost-of-living pressures, the prime minister, Anthony Albanese, played down tensions with the treasurer, Jim Chalmers.
A day after the frontbencher Murray Watt called for colleagues to stop undermining Chalmers, Albanese said: “The treasurer is doing a great job”.
The PM said he was working closely with Chalmers in the lead-up to next month’s mid-year budget update, which will include cuts to government spending as pressure mounts to contain inflation.
“This is a treasurer who’s produced a couple of budget surpluses, lower deficits, [who is] producing economic reform,” Albanese said.
Matthew Hassan, Westpac’s head of economic forecasting, said the mood among households was last this bad in 2022, when inflation was running close to 8% and after the RBA had lifted borrowing costs by 4 percentage points over the previous year.
“Prior to that, readings this weak had only ever been seen in the economy’s darkest moments: at the onset of the Covid pandemic; the height of the GFC; and during the recessions in the early 1990s and early 1980s,” Hassan said.
Hassan said while the economic backdrop was not as extreme now as it was during the pandemic and its immediate aftermath, there were “shades of Covid in the responses” from households.
Confidence in the economic outlook over the coming year reached its weakest since August 2020, the survey showed, matching a low point last recorded during the pandemic.
“The comparison with August 2020 is quite useful as that was when Melbourne went into its second lockdown and just before the government massively scaled up income support,” Hassan said.
“There was a sense of helplessness at that stage; there was nothing we could do to avoid the pandemic, and there was nothing the government could do [to avoid the pandemic]. Obviously when the jobkeeper measures were put in place that comforted a lot of people.
“There is a similar feeling of helplessness now. You can argue a substantial portion of what is happening is out of our control, such as rising fuel prices, and there’s only so much the authorities can do to cushion Australians from that impact.”
Indebted households were gloomier still, the survey showed, with pessimism among this group at its worst in records stretching back to 1994.
The latest survey comes a week after Michele Bullock, the RBA governor, warned that the year ahead would “feel like it’s a recession” thanks to persistent cost-of-living pressures alongside weak economic growth.
After five rate increases this year, nearly three in four respondents said they expected another rate hike over the coming 12 months.
Even as the mood in the community darkens, financial markets have begun factoring in the chance of lower interest rates from the middle of next year.
The implied probability of an RBA rate cut was more than 50% by August next year, according to ANZ data, and a decrease to 4.6% was fully priced in by December 2027.
Investors have been rethinking their forecasts for central bank moves alongside a rapid retreat in the global oil price.
After testing a post-Iran war high of nearly US$118 a barrel at the end of October, the global benchmark, Brent crude, has plunged by 20% to below US$94.
“Our base case is that rates do start to come down from August next year, and we don’t see any further hikes,” Hassan said.
– Additional reporting by Tom McIlroy
