Australia’s consumer sentiment weakens in March, reveals Westpac survey

Highlights

• The Westpac-Melbourne Institute Index of Consumer Sentiment dropped below the 100-level mark in March.
• The decline in consumer confidence was driven by increased inflationary pressures and the Russia-Ukraine conflict.
• Labour market expectations remain strong, while consumers expect housing prices to rise further.

The impact of the Russia-Ukraine conflict has begun to reflect in Australia’s economic data, with the country’s consumer sentiment tumbling this month.

The Westpac-Melbourne Institute Index of Consumer Sentiment dipped by 4.2% in March 2022 compared to February. The index stood at 96.6 points in March against 100.8 points in February. A mix of factors pushed the index below the 100-point level. The March reading was the weakest print since September 2020, when the index was below the 100-level, indicating the end of post-pandemic gloom.

Despite employment statistics remaining robust and the labour market showing a strong recovery, global market forces created widespread unrest in the Australian economy. The decline in consumer confidence was driven by increased inflationary pressures and the Russia-Ukraine conflict. Meanwhile, the data captured the response to the south-east Queensland and northern New South Wales floods.

Since the Westpac survey was conducted between February 28 to March 4, it did not capture most of the devastation seen in greater Sydney. However, agricultural commodity prices helped keep the confidence up in the rural areas.

ALSO READ: How Russia-Ukraine conflict could affect Australian consumers

Overall, the data was not an unexpected shock as the prevailing market forces have created a cloudy economic outlook.

Inflation-related news impacted negatively

As per the latest report, inflation-related news weighed negatively on consumer sentiment. More consumers reported that they had heard inflation-related news in March compared to a year ago. Specifically, 8.6% of the respondents recalled news on inflation a year ago. However, this proportion shot up to 38.7% in March 2022, reaching a fourteen-year high.

How Russia Ukraine War Could Trigger Gas Price Explosion?

Additionally, more respondents recalled international news during the survey timeline compared to a year ago. Out of those surveyed, 18.6% recalled hearing international news in March 2022 compared to 6.9% a year ago. Similarly, awareness on interest rates was also up from 6.9% a year ago to 18.1% in March. Amidst increasing awareness on these topics, 40.6% of respondents had an opinion on the economy, against 28.5% a year ago.

However, 77% of respondents felt that the economic news was largely unfavourable, compared to 43% a year ago. Given all these developments, over two-thirds of Australians expect interest rates to be lifted in the next year.

ALSO READ: Australia sees impressive retail spending and business conditions data

Expectations for housing market and employment

As the official unemployment rate remains at historic lows, the Westpac survey showed consumers’ belief in the labour market remained steady. The Westpac Melbourne Institute Index of Unemployment Expectations fell slightly by 1.1% to 101.8 in March from 102.8 in February. The drop in the index reflects an improvement in expectations regarding a fall in the jobless rate and greater confidence in the labour market.

On the flip side, confidence surrounding the housing market dwindled sharply in March. Westpac’s sub-index ‘Time to buy a dwelling’ fell by 7.7% to 78.3 points in March. The decline primarily stemmed from New South Wales where the state index fell 13.4%, reaching 10-15% lower than other states. Overall, the national index has reached its lowest level since February 2008.

Additionally, the Westpac Melbourne Institute House Price Expectations Index fell 10.8% to 139. A value above 100 indicates that most people expect prices to go up. However, the upward expectations are deteriorating, specifically in New South Wales and Western Australia. Meanwhile, Westpac estimates suggest that dwelling prices will start falling in the December quarter following interest rate hikes in August and October.

Bottom Line

While business conditions and confidence data has not shown such a pronounced effect of global events, it has demonstrated a notable decline in March 2022. While confidence around the housing market is deteriorating sharply, inflation-related pressures may subside in the long-term.

DO NOT MISS: Australia sees strong business conditions and confidence in February, reveals NAB