Consumer confidence hit by Kevin Rudd’s budget: survey

The grim response to the budget, which forecast a record deficit of $57.6 billion (4.9 per cent of national output) and a contraction of 0.5 per cent in the fiscal year starting July 1, may also dash any hopes Prime Minister Kevin Rudd has of calling an early election.

Mounting constraints on the budget and the dour mood of consumers raises the potential for another interest rate cut by the Reserve Bank of Australia.

RBA governor Glenn Stevens told a business group yesterday confidence measures would feature largely in month-to-month “tactical” decision making by its policy making board.

It was a clear signal the RBA still intends to cut rates if confidence dives again. Economists expect optimism to be tested as unemployment climbs over the next year.

Mr Evans said the RBA has policy firepower left, possibly as much as 100 basis points of more cuts if needed, taking the official cash rate target to 2 per cent.

“I’m pretty sure we’ll be seeing some of those bullets being fired in the second half of this year,” mr Evans said.

Treasury Secretary Ken Henry is also feeling some pressure after three major fiscal stimulus efforts have strained the budget. He also said this week that Australia needs to guard against further erosion of its balance sheet.

Mr Rudd dodged direct questions about the extent of the Government’s remaining fiscal flexibility in an interview on Adelaide radio early today, saying only that spending so far had successfully buoyed retail sales.

Annette Beacher, senior strategist at TD Securities, described the consumer confidence retreat as a disaster given that it followed the release of direct payments of $900 each to a large chunk of the population to boost demand.

Australian financial markets were not fully pricing in the potential for interest rates being “lower for longer,” Ms Beacher said.

Also today, wages growth in Australia showed further signs of moderation in the face of the global economic slowdown.

Australian wages excluding bonuses rose 0.8 per cent in the first quarter of 2009 from the fourth quarter 2008 and rose 4.2 per cent from a year earlier, Australian Bureau of Statistics labour price data issued today showed.

Economists surveyed ahead of the announcement on average forecast a rise of 0.85 per cent over the quarter and 4.2 per cent from a year earlier.

“The recent easing (and expected continued deterioration) in employment conditions suggests that wage inflation should remain on a downtrend,” said Besa Deda, chief economist at St George Bank.

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