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Consumer confidence surging, cash rate cut expected

by The Advantage
2 November 2020

Recent evidence shows that although we are in the middle of a global pandemic which has resulted in Australia’s first recession in decades, the consumer confidence has bounced back to pre-pandemic levels, confidence in the housing market is booming and experts predict a cash rate cut on Melbourne Cup Day.   

What is consumer confidence?

Consumer confidence is measured by the level of optimism consumers are expressing regarding their personal financial situation and the overall state of the economy. This confidence may prompt consumers to increase their spending activity, in turn driving economic growth higher.

The positive impact of consumer confidence on the economy

We’re seeing consumers more upbeat about what lies ahead – this can be seen in the latest Westpac-Melbourne Institute Index of Consumer Sentiment survey, which saw consumer sentiment increase by 11.9% to 105.0 in October (up from 93.8 in September).

The truth is, it will take years to recover from the economic blow of the pandemic, specifically with high levels of unemployment and government debt. Normally, recessions have been induced because of an issue in the financial market, however this is a pandemic induced recession and the RBA are doing everything they can to ensure this recession isn’t as severe as predicted. Factors such as average incomes increasing, total mortality decreasing and the recent Budget announcement has positively impacted consumer confidence.

This is an extraordinary result,” said Westpac chief economist Bill Evans.

There’s also an increasing “expectation that the Reserve Bank (RBA) board is likely to further cut interest rates at its next meeting on November 3”, says Mr Evans.

While previous communications from the RBA indicated that the “effective lower bound” of its official cash rate was 0.25%, in recent weeks it’s changed its tune, hinting at a willingness to cut it to 0.10% on Melbourne Cup Day.

“Recently, we have detected a change in attitude (from the RBA) indicating more confidence that the plumbing of the financial system can operate effectively at an even lower set of policy rates,” says Mr Evans.

How consumer confidence affects the housing market

One of the biggest takeaways from the latest consumer sentiment survey is that more and more people believe now is a good time to purchase property. Consumer confidence could impact the housing market with a sudden increase in demand. “The ‘time to buy a dwelling’ index increased 10.6 per cent to its highest level since September 2019,” said Evans. Coupling big deposits from the money people have saved during the pandemic with all-time low interest rates, could result in an influx of buyers.

The reality is that we’re still living in volatile times however, there is a light at the end of the tunnel and there is confidence that the recession will not be as extreme as feared for Australia. Hopefully consumer confidence remains at this impressive high.

How’s your outlook at the moment?

So, how about you? Have things on the financial and property front started to look a little rosier recently?

If so, feel free to get in touch with Advantage Consulting today. We’d love to run you through some of the financing options that may be available to you in the current financial landscape.

Disclaimer: This is general advice and has been prepared without taking into account your particular situation or needs. You should consider whether it is appropriate for you before acting on it.