As the number of covid-19 cases continue to rise across Australia, customers are avoiding spending as much money as possible. This is despite the fact that Australia ended 2021 on an economic high.
However, according to research compiled by ANZ and Roy Morgan, Australia’s consumer sentiment dropped this month as concerns about the explosion in Omicron Covid cases sent confidence to its lowest January levels recorded since 1992.
Consumer confidence dropped 7.6 percent last week, sinking to its lowest rate since October 2020. Omicron case numbers surged across Australia, straining testing facilities and disrupting everything from supply chains and hairdressing salons.
All states fell below the neutral confidence level of 100, and were below the depths of the Delta Covid variant wave. All subindices were also in retreat, including current financial conditions dropping 11.3 percent. The number of respondents saying now was “the time to buy a major household item” also falling by a similar 11.4 percent.
Although the reading for “future financial conditions” was down a relatively modest 4.3 percent, the proportion of those expecting to be worse off in a year’s time rose to 19 percent, the most since September 2020.
“People are spooked by Omicron obviously, case numbers, deaths unfortunately and the difficulty of getting tested. All of that has made people apprehensive and nervous,” says David Plank Head of Australian economics at ANZ.
The low confidence reading, at 97.9, was also notable because it came in January, a time of the year typically associated with upbeat sentiment. Back in January 1992, the last time it was this low in the first month of the year, unemployment was at about 10 percent and rising towards 11 percent.
“What really matters is the labour market conditions were very, very different [from now],” he said. Australia’s November jobless rate was 4.6%, with the ABS scheduled to provide December figures this Thursday,” says David Plank.
Plank believes that it is still unclear how long the effects of Omicron will sap consumers’ urge to spend their money.
A different report that was published on Thursday 13th January showed that there is no sign yet of a reversal in the “Omicron malaise in spending” with a decline of 27 percent in the first half of January compared with the first half of December.
Previous years had seen a decline in the range of 17 to 21 percent for this period, with dining dropping 26 percent as people avoided public places. “Weakening consumer confidence through the first half of January is another sign that spending could stay weak for a while longer”, said the recently published report from ANZ.
Offering some solace to businesses and politicians facing elections soon in New South Wales, South Australia and federally is that 2021 ended with a significant head of economic steam.
“The underlying momentum in the economy at the end of last year, and the stimulus from governments mean that I wouldn’t be particularly worried about where the economy will end up if this fear about Omicron and the pandemic starts to ease. The unknown is, when does it start to ease?” says David Plank.
The major banks across Australia are beginning to revise their forecasts for GDP growth as they assess Omicron’s disruptive effects.
The CBA has been the first to move, disclosing on Tuesday it had chopped its forecast for first-quarter growth to 1 percent from 2.3 percent, compared with the December quarter.
The prediction is that hours worked will drop 3-4 percent because of absenteeism and also supply issues. Damage, though, is expected to be temporary as consumers and businesses “snap back” when the Omicron wave recedes.