Consumer confidence survey shows pessimism at nationwide-lockdown level

The latest Westpac-Melbourne Institute Index of Consumer Sentiment shows pessimism has plunged due to fears more states than Victoria will suffer a second wave of COVID-19 cases.

Consumer confidence in Australia has plunged almost to the depths seen in April when the nation entered lockdown, with pessimism in NSW outstripping coronavirus-stricken Victoria, which may prove to be a big over-reaction, economists say.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell to 79.5 this month, from 87.9 in July and not far the extreme low of 75.6 seen four months ago.

Westpac economist Bill Evans said a sizeable fall in consumer sentiment was expected after Victoria entered stage 4 restrictions and evidence emerged of hot spots in New South Wales, but the scale of the decline came as a major surprise.

The biggest shock was sentiment in NSW collapsing by 15.5 per cent to 77.8, eclipsing Victoria’s 8.3 per cent fall to 78.

Even in Queensland, where cases have been largely eliminated, there was a fall of 8.1 per cent to 79.7.

“While some of the weakness in NSW and Queensland will reflect the direct economic drag from Victoria’s lockdown and the closure of interstate borders, the overall response seems disproportionate to the evidence on developments around the virus,” Mr Evans said.

“This emphasises the fear of the unknown.”

A survey shows unemployment expectations are the highest in more than 6 years.

He said consumers across the nation appear to have been rattled by the developments in Victoria and fear other states may also succumb to a second wave.

But after more than a month, there has been no evidence that clusters in NSW will develop into a Victorian-style disaster.

“Our view is that these fears are likely to have become overblown,” Mr Evans said.

“While consumers are right to be concerned, virus risks still look low outside Victoria.”

Fears should ease as and when lockdown measures in the state start to improve the situation.

The index in South Australia fell by 5.8 per cent to 81.8 while only Western Australia was relatively stable, dipping by 1.5 per cent to 85.9.

CommSec noted that nationally, consumer views on economic conditions over the next 12 months had hit 11-year lows and unemployment expectations were the highest in more than 6 years.

The index was based on survey responses from 1200 people and conducted last week.