Souring consumer mood in Australia may prompt RBA rate cut soon
* March consumer sentiment worst in more than a year
* Pessimists outnumber optimists as index slips below 100
* ANZ removes policy rate rises from its long-term outlook
* Fiscal stimulus critical for economic growth - ANZ
(Adds graphic link)
By Swati Pandey
SYDNEY, March 13 (Reuters) - Australian consumers have
turned gloomy in a one-two punch to the economy already battling
a steep property downturn and anaemic wages growth, raising the
risk of an interest rate cut as soon as next month.
Slowing global growth and a trade war between the United
States and China - Australia's major export market - forced the
country's central bank last month to open the door to an easing.
That policy U-turn by the Reserve Bank of Australia (RBA)
was underscored by a survey released on Wednesday, which showed
the Melbourne Institute and Westpac Bank index of
consumer sentiment fell 4.8 percent in March, unwinding a 4.3
percent jump in February
The index, compiled from a survey of 1,200 people, was down
4 percent from a year earlier at 98.8, meaning pessimists now
outnumbered optimists. This sharply contrasted with the
'cautiously optimistic' consumer mood through most of 2018.
The figures come just one day after a closely-watched
measure of Australian business conditions slipped below the
long-run average in February, dragged lower by falls in
corporate profitability and sales.
"The consumer and business confidence surveys confirm the
weakening in the Australian economy lately and point to subdued
conditions looking ahead," said Diana Mousina, senior economist
at AMP Capital.
"The continued poor data flow in Australia means that the
next RBA meeting in April is 'live' which means that the odds of
no change versus a rate cut look fairly even despite the RBA
appearing neutral in its commentary."
Despite the RBA's doggedly neutral stance, domestic money
markets are fully priced for a 25-basis point reduction in the
official cash rate by August.
The Australian dollar slipped 0.4 percent to $0.7049
as the consumer survey emboldened rate doves, drifting towards a
recent two-month trough of $0.7030.
One reason for the dark mood in the report was a sharp
slowdown in the A$1.9 trillion economy in the second-half of
last year, in part due to the housing downturn.
"We are mindful it may not take much additional weakness to
trigger an easing from the RBA," ANZ's head of Australian
economics David Plank said in a note in which he removed a hike
from the RBA's long-term rate outlook.
"Should it look as if the unemployment rate is trending
higher, we think the RBA will act quite quickly," he said.
ANZ sees the possibility of a policy easing as early as May
although its base case scenario is for rates to stay on hold
The RBA is not alone in shifting away from its long-held
policy stance. Central banks from the United States to Japan and
China have turned more dovish since the start of this year in
the face of cooling global growth and tepid inflation.
In Wednesday's consumer sentiment report, respondents
appeared to be reacting to data showing the economy slowed
sharply in the December quarter of last year, which many in the
media referred to as a "per capita recession".
Fourth-quarter gross domestic product expanded at a
below-trend 2.3 percent annual pace, underlining heightening
pressure on the economy.
"The survey detail indicates that this had a significant
negative impact on confidence," said Westpac senior economist
Matthew Hassan. "Responses over the survey week show a marked
drop-off after the national accounts update."
He said responses collected before the March 6 release had a
combined index read of 100.7, while those collected after the
release had a combined read of 92.7, a drop of 8 percent.
Economists say fiscal stimulus could prove useful in
injecting life into household demand.
The RBA itself has recently noted the success fiscal
stimulus has had during the 2008 global financial crisis while
underlining the limits of monetary policy when the official cash
rate is already at an all-time low 1.50 percent.
"Fiscal policy is more likely to respond in the short term,"
Citi economist Josh Williamson said. "One of looming federal
election battlegrounds will be wages and incomes policy."
Australia's centre-right government will deliver the federal
budget on April 2 when it is widely expected to announce
personal income tax cuts and infrastructure spending ahead of
general elections due in May.
(Additional reporting by Wayne Cole; Editing by Darren
Schuettler and Shri Navaratnam)
First Published: 2019-03-13 01:42:16
Updated 2019-03-13 09:11:36
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