According to ANZ's head of Australian economics Felicity Emmett, consumer sentiment is struggling despite remaining above the long-term average: "The fall in consumer confidence of close to 3 per cent over the past three weeks partly reverses the lift seen through May and early June, back when confidence reached a two-and-a-half-year high ... Confidence has been buffeted by uncertainty surrounding the domestic political outlook, as well as concerns over global growth."
Confidence is being tested on a number of fronts, with international and domestic matters both affecting consumer expectations. The recent Brexit vote in the United Kingdom didn't help to alleviate concerns about global stability and growth, with ongoing terrorism events also leaving people anxious. On the local front, the very tight election result leaves a lot of questions unanswered, especially surrounding the exotic make-up of the senate. Confidence has also been rocked by Standard & Poor's decision to lower Australia's credit rating outlook from stable to negative - a warning that the nation's AAA rating is under threat.
Business confidence is fairing much better than consumer sentiment, with confidence bouncing back to +6 and conditions surging from +10 to +12 in June. While business confidence is still affected by ongoing uncertainty, levels are consistent with recent post-GFC highs. According to NAB's chief economist Alan Oster in a recent report, "We are very much seeing a continuation of the positive trends evident in the survey for some time now ... Strong activity seems to be having a positive effect on labour demand in the survey, despite recent 'questionable' official labour market statistics suggesting otherwise."
The existence of strong business sentiment amidst global unrest is a good sign for the months ahead, with Mr Oster saying "This suggests that firms are looking through external uncertainties, choosing to focus on the positives they see in their own business, at least for the time being ... It is encouraging to see firms' sentiment is holding up, particularly as we head into a period of political uncertainty." While the mining and retail sectors both recorded steep declines in confidence over the month, positive trends are likely to continue as the election fades from memory and the Government gets down to business.
The NAB has reduced its global growth forecast by 10 bps to 20 bps in 2016 and 2017, with annual global growth set to average around 3 percent over the forecast horizon. According to the NAB report, this is a "lacklustre performance that falls well below its long run trend." However, with consistently above-average conditions in non-mining industries seeming to support business confidence, GDP forecasts remain at 2.9 percent for 2016 and 2017, dropping to 2.5 percent in 2018. Low wages growth and weak commodity prices are set to continue, with a subdued inflation outlook likely to keep interest rates stable for the time being.
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