Confidence among Australian mortgage holders has fallen to its lowest level in more than three decades, a Westpac survey shows, amid persistent cost-of-living pressures and a weak economic outlook. The Reserve Bank governor has warned the year ahead will feel like a recession even as financial markets begin factoring in the chance of interest rate cuts from the middle of next year.
The Westpac consumer sentiment index sank in November to a four-year low, with indebted households particularly gloomy. Matthew Hassan, Westpac's head of economic forecasting, said the mood among households was last this weak in 2022 when inflation was near 8%, and before that only in the pandemic, the global financial crisis and the recessions of the early 1990s and 1980s. Confidence in the economic outlook over the coming year matched a low point last seen in August 2020, during the pandemic.
Hassan said there was a similar feeling of helplessness and that a substantial portion of what was happening, including rising fuel prices, was out of people’s control, while authorities could do only so much to cushion Australians from the impact. The survey follows a warning from Reserve Bank governor Michele Bullock that the year ahead would feel like a recession as persistent cost-of-living pressures and weak economic growth continue.
After five interest rate increases this year, nearly three in four respondents said they expected another hike over the next 12 months. Despite the gloom, financial markets have shifted their outlook. According to ANZ data, the implied probability of a rate cut by August next year is now more than 50%, and a decrease to 4.6% is fully priced in by December 2027. Investors have been rethinking their forecasts alongside a sharp fall in the global oil price, with Brent crude dropping 20% from its post-Iran war high to below US$94 a barrel. Hassan said the base case was that rates would start to come down from August next year and that he did not see further hikes.
The prime minister, Anthony Albanese, moved to play down reported tensions with the treasurer, Jim Chalmers, after frontbencher Murray Watt called on colleagues to stop undermining Chalmers. 'The treasurer is doing a great job,' Albanese said. He said he was working closely with Chalmers in the lead-up to the mid-year budget update, which will include spending cuts as pressure mounts to contain inflation. 'This is a treasurer who's produced a couple of budget surpluses, lower deficits, producing economic reform,' Albanese said.
Analysis
Why This Matters
- The plunge in mortgage holder confidence signals deepening cost-of-living pressures that could shape the political landscape ahead of the next election.
- The RBA's warning that the year ahead will feel like a recession highlights the challenge facing the government as it prepares spending cuts.
- A potential shift to rate cuts from mid-2025 would provide some relief to households, but the uncertainty around timing and global factors such as oil prices adds risk.
Background
The Reserve Bank of Australia has raised interest rates five times this year to combat inflation, driving up mortgage costs. The Westpac survey has measured consumer sentiment for decades, and its latest results reflect a mood comparable to periods of national crisis.
Key Perspectives
Anthony Albanese: Says the treasurer is doing a great job and is focused on economic reform and producing budget surpluses, while working on spending cuts in the mid-year update.
Matthew Hassan (Westpac): Says household pessimism is at levels only seen in previous downturns, with a sense of helplessness about factors beyond policy control, but notes that financial markets now anticipate rate cuts from August next year.
Michele Bullock (RBA governor): Warned that the year ahead will feel like a recession due to persistent cost-of-living pressures and weak growth.
What to Watch
- The mid-year budget update next month and the scale of spending cuts it contains.
- The RBA's next rate decision and whether market pricing of cuts is borne out by economic data.
- Global oil prices and their effect on inflation and rate expectations.
Checked
12 claims in this story checked against 1 source: 11 supported.
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- SupportedAlbanese said, “The treasurer is doing a great job.”World news | The Guardian: “Albanese said: “The treasurer is doing a great job””
- Partly supportedAlbanese said, “This is a treasurer who's produced a couple of budget surpluses, lower deficits, producing economic reform.”World news | The Guardian: ““This is a treasurer who’s produced a couple of budget surpluses, lower deficits, [who is] producing economic reform,” Albanese said.”
- SupportedMortgage holders’ confidence has fallen to its lowest level in more than three decades, a Westpac survey shows.World news | The Guardian: “Confidence among mortgaged households has crashed to its lowest level in more than three decades”
- SupportedThe RBA governor warned that the year ahead would feel like a recession.World news | The Guardian: “Michele Bullock, the RBA governor, warned that the year ahead would “feel like it’s a recession””
- SupportedMarkets are factoring in the chance of interest-rate cuts from the middle of next year.World news | The Guardian: “financial markets have begun factoring in the chance of lower interest rates from the middle of next year”
- SupportedThe implied probability of an RBA rate cut by August next year is more than 50%, according to ANZ data.World news | The Guardian: “The implied probability of an RBA rate cut was more than 50% by August next year, according to ANZ data”
- SupportedA decrease to 4.6% was fully priced in by December 2027.World news | The Guardian: “a decrease to 4.6% was fully priced in by December 2027”
- SupportedThe Westpac consumer sentiment index sank in November to a four-year low.World news | The Guardian: “The latest Westpac survey showed its consumer sentiment index sinking again in November to reach a four-year low”
- SupportedConfidence in the economic outlook over the coming year matched a low last seen in August 2020.World news | The Guardian: “Confidence in the economic outlook over the coming year reached its weakest since August 2020, the survey showed, matching a low point last recorded during the pandemic.”
- SupportedNearly three in four respondents expected another rate hike over the next 12 months after five rate increases this year.World news | The Guardian: “After five rate increases this year, nearly three in four respondents said they expected another rate hike over the coming 12 months.”
- SupportedBrent crude dropped 20% from its post-Iran war high to below US$94 a barrel.World news | The Guardian: “After testing a post-Iran war high of nearly US$118 a barrel at the end of October, the global benchmark, Brent crude, has plunged by 20% to below US$94.”
- SupportedThe mid-year budget update will include spending cuts as pressure mounts to contain inflation.World news | The Guardian: “the lead-up to next month’s mid-year budget update, which will include cuts to government spending as pressure mounts to contain inflation.”