Australia’s economy befuddled

by Paul McIntyre

You might recall the Reserve Bank of Australia last week tipped a teaspoon of nitro in the interest rate engine, lifting the cash rate 0.25 percentage points to 5.5 per cent.

Boy, did it get a response.

The single biggest decline ever in consumer confidence was recorded last weekend as a small army of researchers worked the phones for the Westpac-Melbourne Institute Consumer Confidence Index.
It was a sharper fall than after the 1987 stockmarket crash, the 1990 recession, September 11 in New York and the Bali bombing in 2002.

Independent economic advisers Access Economics called Australia the most “interest-rate-sensitive nation in the world”, and little wonder.

Household debt has increased to more than 140 per cent of disposable income, and the Reserve Bank says interest payments rose to a record 9.3 per cent of household disposable income in the September quarter.

So, within three days of the first interest rate rise since late 2003, the punters have hit a big red rock, their confidence levels plummeting 16.6 per cent. Unsurprisingly, home borrowers are feeling the most volatile – their optimism slumped 20.2 per cent, although, as media heir Lachlan Murdoch demonstrated on Tuesday, the high rollers are still romping around real estate.

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The NewZealand Herald