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Will consumer confidence recover in 2024?

The Westpac Melbourne Institute Consumer Sentiment Index fell by 1.8% to reach 84.4, indicating renewed worries about the economy’s immediate future. 

Concerns persist regarding inflation and the possibility of interest rate hikes, showing only slow alleviation. Despite this, consumers maintain expectations of continued growth in housing prices, while safe-haven assets remain the preferred choice for savings. The March update of the Westpac Melbourne Institute Consumer Sentiment Index reveals a sluggish continuation of the previous month’s modest improvements, rather than a substantial uplift from the prevailing gloom of the past two years. Consumer outlook remains bleak, especially concerning the short-term economic prospects.

Will consumer confidence recover in 2024?

Although there are some positive shifts, notably in consumer recall of news topics, where inflation appears less overwhelming compared to previous highs, overall sentiment remains guarded. Notably, assessments of various news topics, including budget and taxation, employment, and interest rates, have become less unfavorable compared to December, except for economic conditions, which showed a slight deterioration likely influenced by soft December quarter national accounts.

The breakdown of the sentiment index reveals fresh worries about the economic outlook, with four of the five sub-indexes declining in March. Particularly notable is the 4.5% drop in the ‘economic outlook for the next 12 months’ sub-index, partially reversing gains from the previous month. Assessments of family finances and the propensity to purchase major household items also receded from their February levels.

A silver lining lies in the ‘economic outlook for the next 5 years’ sub-index, which rose slightly above the long-run average. However, sentiment sharply shifted following the RBA decision, with those surveyed post-decision exhibiting significantly lower confidence. The RBA’s cautious commentary on inflation and interest rates seems to have tempered expectations, with fewer anticipating rate hikes, though rate cuts are also not expected in the near future.

Consumer sentiment regarding jobs remains relatively stable, indicating a softening rather than a significant increase in job losses. Housing-related sentiment shows marginal improvement, particularly in Victoria, while affordability concerns weigh heavily in New South Wales.

Anneke Thompson, Chief Economist at CreditorWatch says: “Westpac’s consumer confidence index for March dipped by 1.8 per cent, following a promising improvement in February. Despite this February improvement, consumer confidence remains very, very low by historic standards, and at 84.4, is well below the long run average of 100.7. Consumers surveyed after the RBA’s March cash rate decision were more pessimistic than consumers surveyed before, probably due to the downgrade in expectations of the timing of future rate cuts.

“The Retail Trade sector continues to be negatively impacted while consumer sentiment is so low. In particular, the food and beverage sector are experiencing much higher rates of business failures than all other industries. Just over 7 per cent of businesses in the food and beverage sector closed down (for both voluntary and involuntary reasons) over the past year, which is well above the 4.6 per cent average rate of all industries.Eating out and buying takeaway food are discretionary purchases, with an obvious substitution in buying food at supermarkets and other retail stores and eating at home. While overall the retail sector business failure rate is about average, there are likely to be large variations between discretionary and non-discretionary retailers. We expect that retail trade insolvencies will rise slightly as the year progresses, due to lingering low consumer sentiment, and the strong jobs market pushing out any expectation of a rate cut to later in the calendar year.”

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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