Consumers get gloomy about the budget

AAP
May 22, 2013

MORE Australians were feeling bad about the economy in the week the federal budget was released.

The Westpac/Melbourne Institute index of consumer sentiment in May fell below 100 points indicating that most of the people surveyed were pessimistic about the economy.

The survey was conducted between May 13 and 18, the week of the May 14 federal budget.

Westpac chief economist Bill Evans said evidence suggested this had been partly due to renewed concerns over the state of the economy, fuelled largely by an unpopular budget.

He said the index was 1.8 per cent higher in the post-budget period compared with the pre-budget period.

“That result indicates that the damage from the budget occurred even before all details were known as respondents reacted to pre-budget media coverage of the fiscal deterioration and some of the likely savings measures,” he said.

“There is some modest comfort for the government that the actual budget details saw sentiment slightly more positive than before its release but, nevertheless, still significantly negative.”

One of the survey questions asked whether people considered the budget left them better or worse off.

Only 5.4 per cent said they would be better off, while 44 per cent said worse off.

“We expect that the dissatisfaction is not only due to concerns around some of the savings measures in the budget but also the sharp deterioration in the fiscal position, indicating renewed fears about the overall state of the economy,” Mr Evans said.

“These concerns are also likely to have been fuelled by the surprise fall in the Australian dollar before and during the survey period.”

The Reserve Bank of Australia on May 7, cut the cash rate by a quarter of a percentage point to 2.75 per cent. It cut it four times in 2012.

Mr Evans said the odds favoured another rate cut in June.

“The survey result strengthens the case for another rate cut as early as June,” he said.

“However, the outlook for business investment and the path of the Australian dollar will be important factors in that decision.”

The Australian dollar has lost almost five US cents in the past fortnight, falling below parity for the first time in almost a year