According to the Westpac Melbourne Institute Index of Consumer Sentiment, consumer confidence in the economy has taken a beating over May, with its second biggest post-budget fall in a decade.
The Index fell by 4.3 per cent in May to 88.8, after sitting at 92.7 the previous month. Westpac chief economist, Bill Evans, attributed this to consumers’ assessments of the Federal Budget.
“That result is probably not so surprising given the difficult economic circumstances in which the budget has been framed,” he said.
But Evans did mention that this result was still disappointing, due to the fact that there have been considerable improvements in the economy.
“The level of the index remains very disappointing. Despite considerable improvement in financial markets and offshore sentiment the index is only 2.3 per cent above its average for the December and March quarters which are accepted as the low points in the world economy.”
Evans emphasised that an emphasis must be put on monetary policy in order for results to improve.
“The emphasis has to be put back on monetary policy, which will need to be seen to be responding when the unemployment rate tracks from 5.5 per cent to 8.25 per cent (government’s forecast) over the course of the next twelve months,” he said.
“We envisage that the Bank will resume cutting rates in August with a target to reduce the overnight rate by a further one per cent through to end 2009.”
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