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Chief economist update: Australian pessimism eases

Just in time for the Southern Hemisphere spring season, latest surveys showed both business and consumer confidence in Australia springing back up.

The NAB business confidence index improved to a reading of -8 points in August from -14 in the previous month. The August figure is even more spectacular when compared with the record low -66 points recorded five months before in March.

Good but not good enough. This is because the latest score indicates that pessimism still rules and as the survey notes: "Confidence is negative in all industries despite improvements outside of mining and rec & personal in the month. Given the size of the current economic shock, confidence remains tightly bunched across industries outside of the mining sector".

Outright not good though is the latest reading on Australian business conditions - the index fell back to a reading of -6 from 0 in July, driven by declines in employment (-11 points), profitability (-4 points) and trading (-3 points) over the month.

The NAB survey was conducted on 18-31 August 2020, before the Victorian government extended Melbourne's lockdown restriction s from September 13 to September 27.

Australian consumer sentiment also improved but, like their business counterpart, it showed that pessimistic consumers still outnumber optimistic ones. The survey was also taken before Victorian premier Dan Andrews' announcement extending the lockdown by another two weeks.

The Westpac/Melbourne Institute index of consumer sentiment jumped by 18% to a reading of 93.8 in September from 79.5 in August and the 29-year low of 75.6 in April.

But as Westpac chief economist, Bill Evans, notes: "...the September survey was completed before the announcement by Victorian State Premier Andrews on September 6 of a slower than generally expected move towards reopening. The disappointment with that announcement could have been expected to dampen the 14.9% surge in confidence in Victoria, although frustration at the extended lockdown measures would likely still be more than outweighed by the clear success they have had in containing the virus".

Adding to Bill's optimistic assessment, all of the consumer sentiment index's sub-components increased sharply over the month, with the index for economic conditions next 12 months soaring by 41% in the month of September.

The 'Family finances next 12 months' index increased by 11.2% over the month and by 4.5% in the year to September. This is backed by the sharp decline 14.8% drop in the "unemployment expectations index" (i.e. consumers expect a decline in unemployment).

Whether or not consumer and business confidence continues to improve depends in no small part on how well the Victorian government is able to contain the second wave.

The sharp deceleration of cases of COVID-19 infections reported in Victoria in recent weeks offers optimism.

Read our full COVID-19 news coverage and analysis here.

Read more: Consumer confidenceBusiness confidenceNABWestpacCOVID-19Bill EvansDan Andrews
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