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Australians’ optimism accumulated ahead of the May cash rate hike was crushed the week succeeding.
The latest data from the ANZ-Roy Morgan Consumer Confidence Index for the week 1–7 May revealed that consumer confidence decreased 2.1 points, with financial conditions dropping 4 points — the second-lowest level on record since 2001.
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The data came in the wake of the Reserve Bank of Australia’s (RBA) 11th cash rate hike, which took many economists by surprise given the considerable lag in the effect on the economy from the corresponding 10 rate hikes.
The RBA’s latest monetary policy statement showed that persistently high inflation, at 7 per cent in the March quarter, was the key reason for an additional hike.
However, according to economists, the forecast also showed that the current 3.85 per cent should be the peak based on current conditions.
Nonetheless, given the immense uncertainty and escalating mortgage debt for many Australians, the surprise interest rate hike pushed consumer confidence to its eighth-weakest result since March 2020.
ANZ’s senior economist Adelaide Timbrell said confidence has remained below 80 for a tenth straight week, the longest stretch since the 1990–91 recession.
“Confidence declined among all housing cohorts and fell the most for those paying off their homes (-3.1 points),” Ms Timbrell said.
In addition, current economic (-2.9 points) and financial (-4 points) conditions were the most affected, dropping below 70.
The ‘time to buy a major household item’ also dropped 2.7 points and remained below 70 for the 13th week.
Business resilience takes a hit
Meanwhile, the NAB Monthly Business Survey for April 2023, conducted from 21–28 April, ahead of the Reserve Bank of Australia’s (RBA) 11th rate hike in May, revealed that business conditions were beginning to ease but remained elevated.
The data reflected the resilience of demand and a strong labour market, with trading conditions, remaining at a high level, while the employment index had stabilised well above its historical average.
Business confidence had stabilised in recent months, following reports businesses were forecasting for growth and confidence had remained high across the sector.
The March 2023 CreditorWatch Business Risk Index (BRI) revealed payment defaults were up 20 per cent year on year following a seasonal dip in December and January and warned the sector has now entered what will be some of the toughest trading conditions for some time.
[Related: Business activity returns to pre-covid levels, CreditorWatch]
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