Bushfires a blow to consumer confidence: Westpac

January’s dive in consumer confidence due to bushfires could have been worse had it not been for recent rain.

Buildings destroyed by bushfire in the NSW town of Cobargo. Picture: Jonathan Ng

Consumer confidence has dived in January in the wake of Australia’s worst bushfire crisis.

The Westpac-Melbourne Institute index of Consumer Sentiment fell 1.8 per cent to 93.4 per cent in January from 95.1 per cent in December.

That’s the lowest consumer confidence reading since October, when the index hit a more than four-year low of 92.79.

Westpac chief economist, Bill Evans said it was “entirely reasonable” to expect confidence to fall due to the devastating bushfires and it was “somewhat surprising” that the fall in the index was not more severe.

“Confidence has been further eroded by the bushfires but because the index was starting from such a modest level it was likely that the fall in confidence would be less than

some may have expected,” he noted.

“Arguably, because the survey occurred in a week where there was widespread rain the negative impact of the bushfires was somewhat reduced.

“If the survey had been conducted a few weeks earlier then the index is likely to have fallen by even more, notwithstanding the very low starting point.”

Overall the low level of confidence was consistent with the generally lacklustre reports on consumer spending, according to Mr Evans.

He said the surprising jump in retail sales reported for November was likely to have largely reflected the “Black Friday” effect.

“A more widespread boost to spending will be required before there are credible grounds to dispute the downbeat signals associated with the consistently low levels of the index,” he said.

Apart from the fires, which he sees as the dominant influence on sentiment this month’s survey, other factors should have been somewhat supportive.

“Optimism around financial markets and the global economy has lifted, with the Australian share market up by 6 per cent since the start of the year,” Mr Evans said.

“Furthermore, the housing-related components of the survey also pointed to ongoing confidence in the housing market.”