Australia’s central bank believes much will hinge on consumer confidence as the nation recovers from the coronavirus shock, with the economic outlook still highly uncertain.
But the Reserve Bank governor says encouraging health news, signs that hours worked stabilised in May and a pick-up in spending show the economic slump might not be as deep as first thought.
The prediction is likely to further buoy consumer sentiment, on top of new data showing people are feeling happier and opening up their wallets as restrictions slowly ease across Australia.
However, Philip Lowe repeated his belief that both the fiscal and monetary support now in place will need to stay in the economy for some time.
“It is possible that the depth of the downturn will be less than earlier expected,” he said in a statement on Tuesday.
“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely.
“In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.”
The bank has kept the official interest rate on hold at 0.25 per cent, and affirmed its intention to do so until progress is made towards full employment and inflation returns to the target band of two to three per cent – neither of which is expected for some years.
The ANZ-Roy Morgan consumer confidence index grew for the ninth week in a row, although it is still well below the long-term average.
ANZ’s head of economics David Plank said good news about control of the pandemic and the relaxation of restrictions was behind the rise.
The Commonwealth Bank’s weekly spending data showed a levelling off, although people are spending much more than during heightened fear about the pandemic in April.
Annual growth is still half to a third of that in early January.
Senior economist Belinda Allen says the next two weeks will be more telling about the pace of recovery as most states move into the second stage of lifting restrictions.
“There’s more opportunity for consumers to go out there and spend, but I guess what we don’t know yet is if consumers want to,” she told AAP.
A raft of Australian Bureau of Statistics releases ahead of Wednesday’s national accounts showed wages and salaries were flat in the March quarter.
The government’s tax take dropped 5.4 per cent from December to March while spending grew two per cent or $1.9 billion.
Economists are predicting the March quarter GDP to fall by between 0.1 and 0.5 per cent.