Consumer confidence falls in wake of budget

by BN20 May 2009

The fall-out from the federal budget and the RBA's decision to leave rates on hold has seen consumer confidence fall in May.

According to the Westpac-Melbourne Institute, consumer sentiment fell 4.3% to 88.8 in May. That left the index 1.1% lower than May last year, and marked the second-biggest fall following the release of a budget in the last ten years.

The May fall reversed gains in the previous month and revealed that consumer disappointment at the RBA outweighed rising share markets.

"It is reasonable to conclude that consumers did not see the budget as a positive for their own finances and are focusing on the temporary nature of the fiscal handouts and the apparent limited scope for further fiscal stimulus over the years ahead," Bill Evans, chief economist at Westpac, said.

Concerns about the deterioration in government's finances also weighed heavily on the 1,200 consumers surveyed by Westpac.

Evans said these concerns put the emphasis on monetary policy which "will need to be seen to be responding when the unemployment rate tracks from 5.5% to 8.25% over the course of the next 12 months".

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