Australia: Consumer mood is delicately balanced – Westpac

According to analysts at Westpac, the Australian consumer mood is delicately balanced heading into mid-2019.

Key Quotes

“The Westpac–Melbourne Institute Consumer Sentiment Index has firmed a touch in the latest month but this is almost entirely due to a substantial boost from the Federal Budget – the projected return to surplus and additional tax relief producing the most positive response in many years.”

“The key question of course is the degree to which the lift is sustained. Our concern is that it proves to be short-lived. Adding to this are clear signs of rising pressure on family finances and consumers’ extremely high levels of risk aversion.”

“Both of these developments reflect the ongoing correction in Australia’s housing markets, centred in Sydney and Melbourne. That correction is again looking likely to be somewhat deeper and more protracted than at the start of the year.”

“That has raised the prospect of more substantive negative ‘spillovers’ to consumer demand.”

“Accordingly, we have again pared back our forecasts for growth in consumer spending in 2019, the growth now expected to track with a 2.2% annual pace as a wealth effect drag sees the savings rate rise from 2.5% to 5%.”