Australian Consumer Sentiment Declines in December

Investing.com– Australian consumer sentiment fell in December, as a private survey indicated renewed pessimism regarding the economic outlook, despite ongoing improvements in household financial conditions.

The Westpac-Melbourne Institute Consumer Sentiment Index decreased by 2% to 92.8 from 94.6 in November.

Although consumers expressed increased confidence in their current financial situations, thanks to steady interest rates, government support, and rising wealth, expectations for future economic conditions deteriorated, according to Westpac.

The ‘economic outlook for the next 12 months’ sub-index plummeted by 9.6% to 91.2, while the ‘economic outlook for the next 5 years’ measure dropped 7.9% to 95.9. Both indices relinquished half of their gains from the preceding two months.

Analysts pointed out that concerns were exacerbated by disappointing national accounts data for the third quarter, which showed modest gross domestic product (GDP) growth and stagnant private demand.

Westpac noted, "The more unsettled global backdrop may also have weighed on the outlook. Expectations for the economy for both the upcoming year and the next five years declined across all detailed sub-groups tracked in the survey."

On a positive note, assessments of family finances continued to improve, with the ‘family finances compared to a year ago’ sub-index reaching its highest level since early 2022. Positive financial sentiment, together with easing inflation, is starting to mitigate the effects of rising prices, Westpac's report stated.

However, Westpac cautioned that renewed concerns about the economic outlook have diminished consumer confidence regarding employment.

Westpac predicts that the Reserve Bank of Australia will maintain interest rates at its February meeting, with a reduction anticipated to begin in May.