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Business confidence, consumer sentiment have evaporated

Business confidence and consumer sentiment in Australia have plunged to the lowest levels in over a year, according to two indices that regularly measure the health of the business sector in Australia.

Illion’s quarterly Business Expectations analysis recorded the lowest level of business confidence since the December 2017 quarter, and Westpace-Melbourne Institute’s weekly Consumer Sentiment Index measured pessimistic consumers outweighing optimistic ones for the first time in 13 months.

Simon Bligh, Illion CEO, cited several domestic and global factors as driving the current uncertainty.

“In the short-term we have an approaching federal election and the final report from the Royal Commission. These could potentially start a chain reaction beginning with business regulations and the availability of credit, and ultimately impact residential house prices and consumer confidence, which are already struggling,” he said.

“Globally, market upheaval in the US, Europe and Asia has continued into the new year. Additional unknowns in the form of a US government shutdown, Brexit and China’s weakening economy all appear to be feeding a ‘wait and see’ approach to decision making,” he added.

These factors also played a role in the downturn in consumer sentiment, according to Westpac senior economist Matthew Hassan, who said sliding house prices and ongoing concerns about global trade wars and political uncertainty have put confidence under pressure.

The Business Expectations Index for the March quarter stands at 20.9 points, down 7.1 per cent year-on-year. The outlook for sales, profits, employment and investment all fell sharply lower compared to the prior year, while actual results were also down for the September quarter of 2018.

The percentage of businesses with an optimistic outlook for the new year fell to its lowest level since August 2017. Manufacturers were particularly downbeat, reporting a 32.4 per cent annual decline for expected sales in the March quarter.

The Consumer Sentiment Index fell 4.7 per cent in January from December, sending the Index below 100 points, the first time pessimistic consumers have outweighed optimistic ones since November 2017.

Westpac-Melbourne Institute noted that the reading should be treated with some caution, since the Index is adjusted to remove the regular boost to sentiment over the holiday season, but the downturn still marks the biggest monthly decline in over three years. Year-on-year, the Index is down 5.3 per cent.

Consumer attitudes towards the economic outlook over the next 12 months fell 7.8 per cent in January, the biggest fall since September 2015. Sentiment around the economy over the next five years also showed a sizeable 5.9 per cent decline, though both sub-indexes remain comfortably above their long run average levels suggesting the economy is still a support for sentiment overall.

Consumer views of their finances versus a year ago posted a sharp 5.9 per cent decline taking it back to near 2018 lows, while their expectations for their finances over the next 12 months fell 3.1 per cent. Both these sub-indexes remain well below long run average levels.

The crucial ‘time to buy a major household item’ sub-index dipped just 1.3 per cent, but this sub-index remains below average with the weak reads around family finances pointing to a continuation of the sluggish consumer spending growth seen through 2018.

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