Australia / Spotlight Reports
Economic update: Consumer Sentiment, October 2020

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by Arthur Kyriakopoulos
Oct 11 2020

The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 18.0% in September 2020 to 93.8, despite the official confirmation that Australia had entered its first recession since 1992. Rising sentiment is largely attributable to a substantial decline in August 2020, and that the September survey was completed prior to Victoria’s announcement of a slower than anticipated move towards reopening, which is expected to partially dampen recovering confidence. Despite that, consumer sentiment has been buoyed by the continued containment of the virus across the nation, allowing for further easing of restrictions. In addition, improving conditions in family’s current financial positions, their future outlook over the next 12 months, the general economic outlook over the next 12 months and five years and optimism about buying a major household item, have all improved relative to August 2020, supporting consumer sentiment.

The significant increase in sentiment during September 2020 follows the second lowest index score recorded over the past decade of 79.5 in August 2020. The extremely low August recording is due to parts of Victoria entering Stage 4 restrictions and hot spots occurring in New South Wales (NSW). Surprisingly, the NSW consumer sentiment in August 2020 fell by 15.5% to 77.8, which is at a greater rate and below Victoria’s reading of 78.0. Queensland also contracted by 8.1% to 79.7. This indicates uncertainty surrounding the virus has been weighing heavily on the population.

Consumer sentiment has remained negative over 2020. Devastating bushfires over the 2019-20 summer, coupled with the onset of the COVID-19 pandemic, placed downwards pressure on consumer sentiment over the first four months of the year. Consumer sentiment hit its lowest point over the past decade of 75.6 in April 2020, followed by lockdowns across Australia. The recording in April indicated that Australia was entering a recession, as comparable readings in consumer sentiment had occurred prior to recessions in 1990–91, 1982–83, 1974–75 and 1960–61. Furthermore, lockdowns in Australia caused a 9.2% collapse in hours worked during April, which was more than two and a half times larger than the biggest monthly variation seen since the data has been collected.

Improving sentiment regarding family finances and economic conditions over the next 12 months are likely to see consumer sentiment rise over the short term. However, this is largely dependent on the containment of COVID-19. Further outbreaks or second waves are likely to harm and delay the projected recovery in consumer sentiment. Despite this, consumer sentiment is projected to reach 98.0 across 2021-22, and return to positivity during 2022-23, at 100.1.