Australian consumers 'disturbingly' grim

Consumer confidence in Australia plunged to "disturbingly low" levels in July, with the kind of slide usually associated with major economic shocks, a survey found Wednesday. The Westpac-Melbourne Institute consumer sentiment index dropped 8.3 percent from June to a reading of 92.8, a "surprisingly weak result" given Australia was experiencing a mining boom with near-full employment, low inflation and solid growth. "It appears that a combination of concerns over the European financial crisis, the ongoing impact of the seven interest rate hikes between October 2009 and November 2010, and uncertainty about the introduction of a price on carbon are now really undermining the confidence of consumers," said Westpac chief economist Bill Evans. The monthly index is compiled from a survey of 1,200 Australians. Scores below 100 indicate pessimists outweigh optimists. The latest survey was taken just ahead of Canberra's unveiling of its pollution tax package, which will see the nation's top 500 polluters levied Aus$23 (US$24.44) per tonne of carbon they spew into the atmosphere from mid-2012. Evans said sentiment was at its lowest since May 2009 when the uncertainty from the global financial crisis was still being strongly felt. The only other time Australians had been so pessimistic was after the former conservative government introduced a 10 percent goods and services tax in 2000, which also coincided with the bursting of the dot com bubble, he said. "Not only is the level of the index disturbingly low but the sheer magnitude of the fall is also remarkable," said Evans. "Such large falls have typically been associated with a major event such as an interest rate increase; a spike in petrol prices; the collapse of Lehmans; or recession fears," he added. The slump was sharpest among higher-income earners, who will benefit least from the raft of household compensation measures which will accompany the pollution tax, with their confidence diving 11.1 percent. Sentiment was also grim among mortgage holders, down 16.5 percent, as the Reserve Bank persisted with hawkish rhetoric about interest rates, which have been held at the relatively high level of 4.75 percent since November. "This is continuing to undermine confidence amongst households who it would appear are incredulous that such a policy is favoured given the current circumstances," said Evans. All the index's major indicators fell in the month, including the economic outlook for the year, the next five years, and whether now was a good time to make a major purchase. The "most disturbing aspect" of the survey was that householders' outlook on their own finances was lower than almost every reading taken during the global downturn and at levels not seen since Australia's last recession 20 years ago. Evans said the muted confidence meant it was unlikely the Reserve Bank would lift rates from their current levels before next year. The Australian dollar was little changed by the data, down to $1.0627 from an earlier reading of $1.0638. It dropped as low as $1.0580 before bouncing to $1.0633 on stronger than expected Chinese growth.