Consumer confidence to determine economic fate, ANZ warns

By Cameron Micallef

August 05 2021
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Whether or not Australia’s economy plunges into a recession will largely depend on consumer confidence post-lockdown restrictions, an expert has said.

Consumer confidence to determine economic fate, ANZ warns

Lockdown restrictions have most experts predicting Australia’s third quarter could show a significant contraction in GDP, with two negative quarters in a row meaning the country has fallen back into a recession.

But despite the very likely drop in economic growth in the September quarter, the governor of the Reserve Bank of Australia, Philip Lowe, used his monthly central bank meeting to raise spirits, highlighting the strength at which the Australian economy could bounce back after an initial dip.

While remaining bullish on the economy, the governor confidently said that following an initial lift in unemployment, the rate would bounce back to 4.25 per cent by the end of 2022.

“The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly,” Dr Lowe said.

Federal Treasurer Josh Frydenberg is selling a similar message, pointing recently to Australia’s economic fundamentals just 12 months after the country had its first economic downturn in nearly three decades.

“We have seen our economy become bigger today than it was going into the pandemic,” Mr Frydenberg told Sky News.

“And we’ve seen 160,000 more people in work today than going into the pandemic.

“No other advanced economy has that track record.”

However, ANZ’s head of economics, David Plank, and senior economist Felicity Emmett have warned that while a snap bounceback is likely, consumer confidence will remain vital to recovery.

In an interview with nestegg, Ms Emmett said the current economic slowdown was largely driven by consumer spending, noting the correlation between consumer confidence and consumption.

“The decline in confidence in Sydney is really important, as long as it doesn’t deteriorate by too much, people will head back to the shops,” she said.

Research previously released by the big four bank showed that consumer confidence had declined sharply in recent weeks, while still remaining well above the depths seen at the beginning of the pandemic.

“The lockdown in Greater Sydney began on 25 June and has been extended to at least the end of August. The loss in confidence from the start of the lockdown currently stands at -16.1 per cent for Sydney, -9.5 per cent for Melbourne and -10.4 per cent nationally,” the economist said.

Despite these sombre figures, Ms Emmett noted how quickly consumer spending could bounce back.

“Credit card data shows, when cities come out of lockdown, spending bounces higher than prior to the lockdown,” she continued.

As such, the bank is predicting much of the lost activity in the third quarter will be recouped in the fourth quarter with a 2.2 per cent bounce in GDP.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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