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Australia Consumer Confidence Drops Amid Delta Lockdowns

Australian Consumer Confidence Drops on Delta Variant Lockdowns

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Confidence among Australian consumers weakened less than expected in early August as they remained optimistic that the economy will quickly recover from virus lockdowns in the country’s two largest cities.

The consumer sentiment index dropped 4.4% to 104.1 points in August, the lowest point in a year, Westpac Banking Corp. said Wednesday in a statement. But optimists still outweighed pessimists, with 100 points the dividing line between the two.

“This is a significant further loss of confidence but better than might have been expected,” said Matthew Hassan, senior economist at Westpac. “The virus situation locally is clearly troubling, but consumers appear reasonably confident that it will come back under control, and that once it does, the economy will see a return to robust growth.”

Australia Consumer Confidence Drops Amid Delta Lockdowns

The highly contagious delta variant of coronavirus has caused shutdowns across the nation’s eastern coast, its most populated area. The Reserve Bank of Australia estimates household spending drops about 15% during lockdowns and has acknowledged the economy will likely contract this quarter.

Still, the RBA expects a solid recovery to resume, and has decided to stick with plans to taper bond purchases for now.

The resilience of consumer sentiment will give some comfort to the central bank, suggesting households and the wider economy remain well placed to snap back once virus restrictions ease, Hassan said.

Australia Consumer Confidence Drops Amid Delta Lockdowns

The consumer report, based on polling of 1,200 people from Aug. 2-7, showed much less weakness than business confidence released a day earlier, which surveyed more than 400 firms from July 20-30.

The survey of consumers spanned a period when RBA chief Philip Lowe predicted the economy would bounce back quickly from the lockdowns in a bullish policy statement last Tuesday. It also covered his testimony three days later when he reiterated that upbeat assessment.

Sydney has been hitting record daily infections despite being in its seventh week of strict stay-at-home orders. The city accounts for 25% of Australia’s output and 22% of employment.

Westpac’s report showed the biggest decline in sentiment was among paraprofessionals and tradespeople. Pressures on health and education systems, disruptions to building sites and the tougher restrictions in place for parts of Sydney all played a part in their gloomier view.

The report indicated that more than 40% of the city’s tradespeople work in the eight local government areas of concern in Sydney’s south and west facing the tightest lockdown restrictions.

Australia’s renewed virus crisis reflects a tardy vaccine roll-out that’s left the population vulnerable to the delta variant during the southern hemisphere winter. Hassan said the availability of effective Covid vaccines was a key source of support for confidence.

“Notably, sentiment is much stronger amongst those that have either been vaccinated or plan to get the jab,” he said.

©2021 Bloomberg L.P.