Nosediving sentiment to drive two rate cuts, major bank claims

by Adam Smith11 Dec 2014
Consumer sentiment has fallen to its lowest level in more than three years as Australians worry about the economy and their job security.

The Westpac-Melbourne Institute Consumer Sentiment Index fell 5.7% in December. Westpac chief economist Bill Evans called the drop in sentiment "a very disturbing result".

"The Index is now at its lowest level since August 2011 when it briefly fell below 90. Prior to that, you have to go all the way back [to] May 2009 to see a period when the Index printed consistently below today's level," Evans said.

Evans argued that the fall could be attributed to news of Australia's slow economic growth and declining incomes, with respondents "unnerved" by references in the media to an income recession.

"Respondents are clearly concerned about the outlook for the economy and job security. In addition there is ongoing disillusionment about the May Budget, six months after it was announced," Evans said.

Evans said optimism in the housing market had also "evaporated", with the index tracking assessments of "time to buy a dwelling" at its weakest since November 2010.

With sentiment faltering, Evans predicted the RBA will cut rates when it next meets in February, followed by another rate cut in march.