The Westpac-Melbourne Institute Index of Consumer Sentiment fell 6.1 per cent to 87.9 in July from a high of 93.7 in June as a second wave of COVID-19 cases roiled Victoria and stoked fears of renewed lockdown measures.
“Our read is that whereas previously respondents were confident that the damage from the virus would be [short-lived], the [setback] over the last month raises significant questions,” said Westpac chief economist Bill Evans. “There looks to have been a substantial loss of confidence around the ability to contain the virus permanently, limiting the extent to which the economy can return to business as usual.”
The latest survey also ended shortly before the “significant cluster” of new cases in Sydney which emerged last weekend, pointing to a possible further fall in sentiment.
Job loss concerns escalated sharply in July, with unemployment expectations surging 12.1 per cent – reversing a 19.5 per cent improvement through June – due to concerns about the imminent withdrawal of the JobKeeper program and the prospect that the reopening of the economy may take longer. All eyes are now on the government’s fiscal update, coming 23 July.
“Before the news of the Melbourne closures, Westpac had revised its budget deficit estimate for 2020/21 to $240 [billion] from the $170 [billion] which we released in May,” Mr Evans said. “That revised estimate incorporated around $50 [billion] including extensions to JobKeeper ($24 [billion]); JobSeeker ($11 [billion]) and further stimulus in the October budget ($15 [billion]). With this sharp relapse in consumer confidence stemming from the latest news on the closures in Melbourne the policy response is likely to be even greater.”
