Confidence in the economy surged to a 10 year high, representing a remarkable turn of events months after enduring a recession comparable to The Great Depression.
The Westpac-Melbourne Institute Index of Consumer Sentiment lifted by 4.1 per cent to 112 in December, a level not seen since October 2010.
The monthly index, compiled from telephone interviews with 1200 adults in the first week of December, is now 48 per cent above the low recorded in April, representing an economic turnaround in just eight months.
This compares favourably to other recessions. In the eight months following the global financial crisis, sentiment rebounded 8.4 per cent.
“The recovery in sentiment in the COVID recession has been much more rapid” than other recessions, Bill Evans said, chief economist at Westpac.
“...There are still risks, notably around vaccine developments.”
People’s outlook was brighter because the country appears to be containing the COVID-19 coronavirus, the economy performed better-than-expected in the September quarter, and vaccines appear to be on the way, Mr Evans said. This led to a 10 per cent lift in people’s outlook on the economy in the next 12 months -- another a decade high.
The positive sentiment was echoed in the ANZ-Roy Morgan consumer confidence survey, which experienced a 1.7 per cent rise to 109.3 -- pushing it to its highest level all year.
“Consumer confidence rose this week as Australian’s perception of their economic and financial prospects continued to improve," David Plank said, head of Australian economics at ANZ.
The window to snap up a bargain is closing
Fewer believed it was the right time to buy a home with sentiment falling from last month’s seven year high. A fall of 5.9 per cent to 124.2 was recorded, placing it still 4.4 per cent above its long run average.
The result “suggests the turnaround in Australia’s housing markets – which are all now seeing price gains – may be starting to shift views on affordability and prospects for bargain buys,” Westpac’s Mr Evans said.
Housing values have gone up in every capital city other than Melbourne in the September quarter, according to ABS data, once again posting unseen highs.
People sensed property prices were recovering. The index on house price expectations lifted by 9.4 per cent to 143.7 -- an increase of 2.5 per cent for the year.
Spending on major household items is beginning to slow down, the survey found. A lift of 0.7 per cent for the month left it nearly 6 per cent higher than it was over the same period a year earlier.
“The surge in sales of household goods we saw earlier in the pandemic is now slowing,” Mr Evans said, “but activity remains well above pre pandemic levels.”
Families are still struggling
A suite of relief measures have helped the majority of people, but with unemployment and under-employment still high, there are families still doing it tough.
This was reflected in the ‘finances verses a year ago’ sub-index. The gain of 6.9 per cent pushed it to 96.1.
“Those experiencing a deterioration continue to slightly outnumber those seeing an improvement, but the sub–index is over 30 per cent above April’s lows,” Mr Evans said.
“This gain came despite the reduced support from the Government’s JobKeeper and JobSeeker measures and the ongoing reductions in bank deposit rates.”
Job prospects are looking better
The index measuring growing unemployment dropped to its best level in nearly 10 years. The Unemployment expectations index fell 16.2 per cent to 106.3, indicating renewed confidence in job security and less people worrying about losing their jobs.
There were a couple of reasons for the uplifting outlook, Mr Evans said. Unemployment forecasts have been lowered as almost half of the 932,000 jobs lost due to the COVID-19 pandemic were recovered, according to ABS figures.
More is known about the economic impact of the coronavirus pandemic today than when it first struck almost nine months ago, leading to banks revising their forecasts for both this year and the ones coming.
The outlooks are upbeat. Westpac now expects growth of -2 per cent in 2020 and of 4 per cent in 2021, anticipating the economic impact of the COVID-19 pandemic being less than originally expected.
The unemployment rate, at one stage believed to hover around the 10 per cent mark, is now forecast to lower to 6 per cent by the end of 2021, and return to its typical 5.2 per cent in 2022.
“(The) revised unemployment forecasts indicate that the unemployment rate will return to close to its pre–COVID level in less than three years,” Mr Evans said.