Australia Consumer Sentiment Slumps Most in 17 Months on Budget

Australian consumer confidence slumped by the most in 17 months as a government announcement the budget would remain in deficit overshadowed record low interest rates, a private survey showed.

The sentiment index for May dropped 7 percent to 97.6, a Westpac Banking Corp. (WBC) and Melbourne Institute survey taken May 13-18 of 1,200 adults showed today in Sydney. That was the biggest drop since December 2011 and the first time since October 2012 the figure has fallen below 100, which indicates pessimists outnumber optimists.

Reserve Bank of Australia Governor Glenn Stevens and his board have slashed borrowing costs by 2 percentage points over the past 19 months to 2.75 percent, joining global counterparts in embracing record-low rates in an economy where inflation is contained, mining spending is predicted to crest, and credit growth stays subdued. The government in December abandoned a pledge to return the budget to surplus this fiscal year and last week projected a deficit of A$19.4 billion ($19 billion) in the 12 months to June 30.

“The results confirm our reasonable assumption that this weakness in confidence is being driven by a sharply negative response to the budget,” said Bill Evans, Westpac’s chief economist. “We expect that the dissatisfaction is not only due to concerns around some of the savings measures in the budget but also the sharp deterioration in the fiscal position, renewed fears about the overall state of the economy. These concerns are also likely to have been fuelled by the surprise fall in the Australian dollar before and during the survey period.”

The local currency has dropped 4.5 percent in the past month, the worst performer among the 16 major currencies tracked by Bloomberg.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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