Consumer confidence surprises on upside

The uptick was driven by a sharp improvement in perceptions of future economic conditions, with an improvement in perceptions of economic conditions next year (plus 14.5 per cent) and economic conditions in five years (plus 4 per cent).  An ongoing drag however was a 3.1 per cent fall in perceptions of 'financial situation compared to a year ago', the most closely correlated data with spending. This index is now down a sharp 15 per cent, further fuelling fears that consumer spending could soften in the short term.

ANZ chief economist Warren Hogan says given the extent of the recent deterioration, developments in consumer confidence over the next few weeks will be watched closely for any improvement.

“With consumer spending an important driver of growth, the deterioration in confidence, if sustained, has the potential to weigh on the economy and possibly push out the timing of rate hikes,” Hogan says.

“Although it remains 12 per cent lower than six weeks ago, the modest bounce back in confidence last week is a tentative positive sign and we will be watching closely the near-term direction of the index to gauge the impact on the economy.”

Mark Whelan, ANZ Managing Director, Corporate and Commercial Banking, says the index reflects comments from customers concerned about the short term impact of the budget. "It depends on the industry and business but longer term there is a level of confidence out there that may flow through and improve consumer spending," he says.

Whelan adds forth coming national accounts are expected to show the economy performed strongly in the first three months of the year with expected growth of about 1 per cent in the March quarter with strong contributions from exports and household consumption. The Federal budget forecast growth would only reach 2.75 per cent this year.

"Everyone will be keeping a close eye on economic data in the next few months," he says.