Australia: Close to Home

Australian Consumer Sentiment Plunges

Wall Street Journal, 

14 December, 2011

SYDNEY—

Australian consumer sentiment plunged in December as rising unemployment and heightened fears linked to Europe's debt crisis swamped news of cuts in interest rates over recent months.

The souring mood is casting doubts over the strength of Christmas sales, which are make-or-break for some retailers, and comes as the Australian dollar fell below parity with the U.S. dollar in skittish trade. On Wednesday, the Australian dollar was trading at US$1.0015, having sunk to a session low of US$0.9978.

Economists said a further loss of confidence would strengthen the case for interest rates to be cut further in early 2012.

"The Reserve Bank [of Australia] looks very likely to cut interest rates early in the new year. In addition an improvement in the global economy—in particular regarding the euro-zone debt crisis—will be needed to shore up confidence levels," said Craig James, chief economist at Commonwealth Securities.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 8.3% in December from November, its lowest level since the wild trading on global equity and currency markets in August as the world focused on the U.S. debt ceiling impasse.

Still, policy makers continued Wednesday to argue that the economy and the country's banks are well braced to ride out a full blown European crisis in 2012.

Reserve Bank of Australia Deputy Gov. Ric Battellino said Wednesday a major crisis in Europe "can't be ruled out," and that the central bank remains alert to a sudden implosion of confidence in the euro zone. But he repeated comments made by Treasury Secretary Martin Parkinson on Tuesday that the country's banking sector is in good shape.

The RBA cut interest rates in November and December, citing rising concerns about Europe for the policy easing. The benchmark cash rate is 4.25%.

"We need to monitor the situation carefully and remain alert to the risks," Mr. Battellino said.

Evidence of growing strain on the banking system also surfaced Wednesday as Westpac Banking Corp. warned Europe's debt woes may soon start to affect the availability of credit. Chief Executive Gail Kelly said costs are rising for banks because of Europe.

"Higher funding costs are a reality of this environment and are continuing to place pressure on interest margins," she said, adding that funding markets are effectively shut.

Falling consumer sentiment also comes amid a growing sense the commodity-rich economy has slowed in the fourth quarter. Around 40,000 full-time jobs were shed in November while housing data shows the sector is in a deep hole.

Bill Evans, chief economist at Westpac, said consumers are clearly tuning in to the news from Europe.

The confidence survey showed interest rates were cited by 32% of respondents in December whereas economic conditions attracted the attention of 60%, international conditions 56% and budget and tax 37%.

If I’m correct it’s called deleveraging and probably a sign that people are cutting back, rather than an indication of ‘new-found prosperity’.

NZ household savings return to the black

Stuff

15 Deecmber, 2011

For the first time in more than a decade, New Zealanders are saving rather than borrowing to spend more than they earn.

Statistics NZ figures show New Zealand's household sector saving was $200 million in the 2011 March year, the first time it has been positive since 2000.

That was equal to 0.2 per cent of household net disposable income.

Overall, this compares with the March 2010 year, when household spending was $1.6 billion more than income.

''Household sector saving is positive for the first time in more than a decade, after borrowing first began to decline several years ago,'' economic statistics development acting manager Vannessa Turner said.

After peaking in 2007 at $11.8b, combined central and local government saving fell again in the past year, reaching negative $2.4b in the year ended March 2011

.

Gross disposable income for combined central and local government increased only $200m in 2011, to $40.5b.  Taxes from the household and producer enterprises sectors were down. Gross disposable income includes taxes and GST.

Overall, New Zealand's national saving by households and government combined, was $1.2b in the year ended March 2011, compared with $2.0b the previous year.