Australian households are experiencing newfound financial confidence, marking a significant turnaround after an extended period of economic struggle. In March, consumer sentiment rose by 4 per cent, bringing the index to 95.9, up from 92.2 in the previous month. This improvement indicates that the index is now just four points shy of the neutral level of 100, where optimism and pessimism among consumers are balanced.
This surge in consumer confidence aligns with a slight increase in spending, as household consumption grew by 0.4 per cent in the last quarter of 2024, following two quarters of decline. Contributing to this uplift is the slowdown in inflation and the recent cut in interest rates, the first in over four years, which has positively impacted household financial outlooks.
Matthew Hassan, the head of Australian macro-forecasting at Westpac, highlighted that the Reserve Bank of Australia’s (RBA) decision to lower rates and easing cost-of-living pressures have clearly boosted confidence. He noted a gradual improvement in family finances and growing optimism for the year ahead.
The recovery in consumer sentiment reflects a significant shift from a prolonged phase of pessimism, regarded as the deepest since the survey commenced in the mid-1970s. The increased purchasing power resulting from the interest rate cut has encouraged Australians to invest in major household items, after having refrained from spending for several years.
However, the survey also revealed concerns about international economic conditions, particularly related to ongoing global uncertainties stemming from US policies. Despite the positive sentiment domestically, 82 per cent of Australian consumers expressed that foreign economic conditions are unfavourable, indicating a mixed outlook when considering the global landscape.
Overall, while Australians are beginning to feel more secure in their financial circumstances, there remains caution regarding external economic factors that could impact this newfound confidence.