Australian consumer, business sentiment converge as prices rise

(Bloomberg) – Consumer sentiment in Australia remains very pessimistic, with business confidence turning negative for the first time this year, as rapid rate hikes weigh on the economy.

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Westpac Banking Corp.’s consumer sentiment index rose 3% to 80.3 in December, recovering from a 2-1/2 year low, with pessimists easily outpacing optimists. said Tuesday. Independent data from National Australia Bank Limited. Showing business confidence has remained above 0 since December 2021, falling to -4 in November.

Consumer and business sentiment are converging after a long split, while the Reserve Bank has embarked on its worst tightening cycle in 33 years in response to soaring prices. While upward pressure on living costs and higher mortgage payments hurt households, businesses remained upbeat for a while.

NAB figures showed business conditions, which measures hiring, sales and profits, fell by 2 percentage points to 20. NAB chief economist Alan Oster said the gap between confidence and conditions was now at record levels beyond the start of the pandemic.

The divergence points to “increased concerns about the economy’s resilience in the period ahead as rising inflation and interest rates begin to weigh on consumers,” Oster said.

Economists expect the economy to slow sharply as household spending is expected to weaken as the full impact of the RBA’s rate hikes is felt. The central bank has raised interest rates by 3 percentage points since May, and most economists predict that the central bank will raise rates one or two times, with the final rate at 3.6%.

There are early signs that households are acting on that sentiment – data from the Commonwealth Bank of Australia on Tuesday also showed its index of household spending sentiments rose 3.2 per cent in November from a year earlier, down from a peak of 15.2 per cent in August.

“Consumer risk aversion remains broadly strong,” said Bill Evans, chief economist at Westpac. Inflation concerns have not abated.”

(Adds NAB business confidence, CBA household spending figures.)

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