Australia: Consumer sentiment remains critical - Westpac

According to analysts at Westpac, the consumer sits front and centre of domestic risks to Australia’s economic outlook.

Key Quotes

“More specifically, the extent to which consumer spending is affected by ongoing weakness in wages, spillovers from the correction in house prices and a slowdown in job gains will have a major bearing on the wider pace of economic growth.”

“Consumer sentiment remains a critical gauge of how these risks are panning out.”

“So far the signal from the Westpac–Melbourne Institute Consumer Sentiment Index is showing some loss of confidence but not the sort of swing into outright pessimism that would indicate a more abrupt slowdown in demand. Indeed, the Index has mostly just given back the modest lift seen following the tax cuts announced in the May Budget.”

“The bottom line is that it is unclear exactly how much wealth effects will weigh on the consumer but risks are clearly to the downside. We already expect spending growth to slow but if these risks materialise and sentiment swings to outright negative, the slowdown could quickly turn into a harder landing.”