Consumer confidence has reportedly slipped to a four year low as concern rises over the Reserve Banks decision to cut interest rates for the third time this year.
According to research reported on by the Australian Financial Review, Westpac Melbourne Institute Index of Consumer Sentiment fell 5.5% to 92.8 in October from 98.2 in September.
Since the RBA began cutting rates in June, the Index has fallen by 8.4%, with Westpac chief economist Bill Evans suggesting ‘consumers are looking behind the reasons for the rate cut’.
Mr Evans points to global events contributing ‘to the weak result in October’; however, events such as the US-China trade war are unlikely to explain the economic slip in the Index.
Shadow Treasurer Jim Chalmers has an alternative reason for the failure of the Australian economy, citing weak economic management by the Federal government.
Mr Chalmers met with Reserve Bank governor Philip Lowe and APRA chairman Wayne Byres to discuss the economy, telling the AFR, the RBA should not be left with the heavy lifting when it comes to stabilising the economy.
Pointing fingers at the Liberal government, suggesting ‘if Scott Morrison and Josh Frydenberg had a plan for the economy the Reserve Bank wouldn’t have had to cut rates to below 1 per cent’.
“This shows that Australians are worried about the economy. Scott Morrison and Josh Frydenberg are out of touch. Australians are losing confidence rapidly. We call on the government to do something about this floundering consumer confidence.”
Labor has played a constructive role in making suggestions for how the government could improve the economy, with Mr Chalmers identifying several areas for improvement.
However, Commonwealth Bank economist Belinda Allen, warns of a downward spiral that could be caused by the negative news flow, reducing consumer confidence and the quashing of overall consumer spending.
Consumer views around family finances dropped by 9.3%, with Westpac highlighting ‘a lack of response of fiscal policy to the deteriorating outlook’ in the wider economy, echoing Mr Chalmers concerns with the Federal Government.
Combined with the negative expectation that wage growth will remain stuck at 2% each year, consumer attitudes towards spending is dipping further towards pessimism.
Westpac expects a further cut in the cash rate to 0.5% in February next year, depending on developments in the labour market and the global economy.
