Consumer confidence drops after federal budget

Consumer confidence has dropped sharply in May, falling 4.3% from 92.7 points in April to 88.8 in May, according to Westpac.

Consumer confidence is now 1.1% lower than in May last year.

Westpac chief economist Bill Evans has laid the blame squarely at the feet of the federal budget, claiming the size of the deficit and the lack of further cash handouts has hurt consumer sentiment.

“Our records indicate that this is the second biggest fall in the index following the release of a budget in the last 10 years,” Evans says. “That result is probably not so surprising given the difficult economic circumstances in which the budget has been framed.”

Westpac’s research shows those segments of society targeted by the budget have suffered the biggest falls in confidence. Confidence of people in the centre age group (25 to 44 years, who may have been hit hard by the changes to the private health insurance rebate) fell by 7.4%, while the confidence of those earning over $60,000 fell by 6.5%. For those earning less than $40,000 confidence levels fell by 5%.

Confidence levels among families also slipped.

“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.”

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