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Bushfire crisis drives down consumer sentiment

The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 1.8 per cent to 93.4 in January, from 95.1 in December.

The study was conducted on 1,200 adults aged 18 years and over, with answers procured in the week from 13 January to 17 January 2020.

According to Westpac chief economist Bill Evans, the fall in consumer sentiment isn’t unexpected in light of the bushfire crisis, which grew in severity throughout the month of January, and remains consistent with other studies of consumer sentiment during this time.

Large-scale natural disasters are likely to result in a drop in sentiment. However, given that overall sentiment levels have held consistently low for the last number of months, the fall was not as severe as has been seen in the past, according to Mr Evans.

Mr Evans suggested that as the study was taken during the first few days of rainfall across NSW and Victoria, following on from months of drought and fires, this likely negated the true extent to which consumer sentiment fell between December and January.

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Results across the sub-indices reveal that Australians have grown slightly more comfortable with their current financial situation, evident in a 0.7 per cent increase month-on-month in the finances compared to the previous corresponding period. 

Mr Evans suggested this could be due, in part, to improvement seen in the global market, the easing of trade tensions, and the Australian sharemarket hiking up 6 per cent since the start of the year.

Additionally, sentiment around the housing market continues to improve in the low interest rate environment, with the “time to buy a dwelling” index up 5.7 per cent to 188.8 in January, close to its long-running average of 120.

The “house price expectations” index also rose by 8.1 per cent in January to 151.48, up 58 per cent when compared to January 2019.

However, a lot of the general economic sub-indices fell during January, with the “economy next 12 months” sub-index down 5.4 per cent month-on-month, and “economy next 5 years” down 3.7 per cent.

Both these sub-indices are down sharply from January 2019, falling 11.9 per cent and 8.9 per cent, respectively.

The “time to buy a major household item” index fell by 1.8 per cent between December and January to 113.4, well below its long-run average of 127, and down 4.1 per cent compared to last year.

Mr Evans stated that this is a sign that traditional bumps in consumer spending during December and January were more muted this year, as consumers remain cautious despite lower interest rates.

[Related: Price recovery flips property industry sentiment]

Bushfire crisis drives down consumer sentiment
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