A Bright Light For Consumers Shines, As The End Of The Financial Tunnel Nears

AUSTRALIA may avoid the worst of the global financial crisis, thanks to a dramatic rise in consumer confidence, and the return of buyers to the housing market.

Consumer confidence in Australia is back to almost normal levels, while housing finance is clawing its way back, towards the mid 2007 record.

Westpac Senior Economist Matthew Hassan, said consumer confidence surveys in all countries fell sharply from the middle of last year to last October, and while other measures in other nations have continued to slide, there have been modest gains over recent months in Australia.

“We stopped short of falling into the depths of despair,” Mr Hassan said.

Consumer surveys in the US, Britain, Japan, and Europe, are all at extreme lows never experienced before, with Mr Hassan distinguishing the big difference between Australia and other countries, being the strength of our banks, and the fact consumers have enjoyed the benefits of lower interest rates.

The Westpac – Melbourne Institute’s consumer sentiment survey recorded an 8.3 per cent increase over the past month, with the index measure of 92.7 points fast approaching the long term average mark of about 100.

Banking systems in other countries have been in distress, and there has been no reduction in interest rates to either consumers or busineses.

With the rise in consumer confidence being seen in Australia, defing the trends set globally, it has been hailed as the saving grace by Reserve Bank Board Member, and Australian National University Professor Warwick McKibbin, in avoiding the worst recession in our country’s history, arguing:

“You get a massive wiping out of your economy if, in fact, your consumers stop spending. In the US and UK, we have a financial crisis; in other countries, we are faced with falling exports and a collapse of international trade, but really what’s hurting countries is the loss of domestic confidence.”

However, the rally in share markets, the government stimulus package, and the fall in mortgage costs have all been credited for the revival of financial markets.

The news isn’t all good though, with Reserve Bank Governor Glen Stevens earlier this year, warning at a House of Representatives Economics Committee, that the Reserve Bank would be forced to reverse direction, and increase interest rates, when consumer confidence and growth had recovered:

“If there were a sudden return to confidence and growth, policy would have to get out of the way of that smartly,” he said.

Ahead of the Reserve Bank’s meeting next month, financial markets are sharply pairing their expectations for further rate cuts, putting only a 75 per cent chance of a 25 basis point rate cut. Markets yesterday, were trading on the basis that a cut of at least 25 basis points at the next Reserve Bank meeting was certain, and a 50 point cut was likely, before the release of positive consumer sentiment and housing figures were released.

Whilst this may come as good news to many, that there are signs starting to show, that the global economic crisis is starting to back down, this good news unfortunately brings with it, the prospects of higher interest rates. Away from the technical side of things, but still on that note, the coverage of such issues regarding the global economic crisis in the media, has as a whole been extremely good, due to its extensiveness being such a major financial issue. However, some media organisations have downplayed the global economic crisis, whilst others have overhyped the situation, striking the right balance, and presenting a very fair picture is The Australian, which I have used as my source for this comment blog. The Australian has presented a very clear and concise report, telling their readers exactly what the situation is, without sheer and unnecessary sensationalism, and in turn, in a way understandable to most, if not all Australians.

SOURCE: The Australian