Consumer confidence rises, but global and weather concerns limit gains

The Westpac-Melbourne Institute Consumer Sentiment Index recorded a 4% rise in March, increasing from 92.2 to 95.9.

This follows a temporary dip over the holiday period, with sentiment rebounding due to the Reserve Bank’s (RBA) February rate cut and easing cost-of-living pressures.

The rise in confidence was broad-based, with a notable improvement in expectations for labour market stability. However, sentiment remains just below the neutral 100 mark, indicating that pessimism still slightly outweighs optimism.

Matthew Hassan (pictured left), Westpac’s head of Australian macro-forecasting, said that consumer sentiment is at its highest level in three years and is now “just 4% off the ‘neutral’ level of 100, where there are the same number of optimists as pessimists.”

Global uncertainty weighs on expectations

While domestic economic conditions improved, concerns over international developments grew. The March survey found that:

• Inflation remained the most-recalled topic, though fewer respondents viewed it negatively compared to December.
• News about global conditions was perceived as unfavourable by 82% of those recalling it, up from 68% in mid-2024.
• Ongoing concerns about the US tariff war and geopolitical instability are affecting economic outlooks.

These global concerns were echoed in the ANZ-Roy Morgan Consumer Confidence report, which showed a 0.8-point decline to 86.9 this week, attributing part of the dip to uncertainty about the global economy.

Household confidence in the five-year economic outlook weakened by 3.5 points, reflecting similar trends seen in the Westpac–Melbourne Institute data.

Household finances show gradual improvement

Despite persistent cost-of-living challenges, sentiment around family finances is improving:

• The “family finances vs a year ago” index rose 2.1% to 76.7, remaining weak but showing a 17.6% annual increase.
• The “family finances, next 12 months” index increased 3.2% to 108.3, the highest since January 2018 (excluding COVID-related fluctuations).
• Mortgage holders showed a particularly strong improvement, with their expectations index rising 11.4% to 117.6.

While the Westpac survey highlighted optimism in financial expectations, the ANZ-Roy Morgan report suggested ongoing hesitation, with 28% of respondents still expecting their finances to worsen in the next year.

Weather disruptions dampen optimism in Queensland

Cyclone Alfred impacted confidence levels in Queensland, as reflected in both reports.

The Westpac survey found a 1.7% decline in sentiment in Brisbane, while ANZ economist Madeline Dunk (pictured right) noted that “Queensland confidence fell more than other mainland states” following the cyclone.

Flooding and storm damage in Southern Queensland and Northern NSW contributed to this dip, disrupting consumer sentiment despite broader national improvements.

Interest rate expectations shift

RBA’s recent rate cut influenced mortgage rate expectations:

• The Westpac–Melbourne Institute Mortgage Rate Expectations Index dropped 2.2% to 88.2, a new cycle low.
• 36% of respondents now expect mortgage rates to decline over the next year, compared to 26% who believe rates will rise.

Similarly, the ANZ-Roy Morgan data indicated some lingering concerns about inflation, which increased 0.5 percentage points over the past fortnight. However, inflation expectations remain near their lowest level in three years.

Housing market sentiment improves

Consumer attitudes toward home buying are shifting as interest rates decline:

• The “time to buy a dwelling” index rose 4.3% to 91.6, marking the lowest level of pessimism since September 2021.
• In Victoria, buyer sentiment jumped 15.3% to 106, signaling outright optimism, while Western Australia saw a 24.6% rebound to 89.4.
• The House Price Expectations Index increased 2.9% to 146.5, with 59% of respondents predicting price growth over the next year.

The ANZ-Roy Morgan report also found a small improvement in consumer willingness to make major purchases, with 25% of respondents now saying it is a good time to buy big-ticket items, up from 24% the previous week.

Investment and savings trends

Consumers are showing marginally higher interest in real estate as an investment.

While bank deposits and debt repayment remain the preferred savings options (52%), real estate was nominated by 10.5% of respondents, the second-highest level since 2020.

Rate cuts and economic stability

RBA is expected to hold rates steady at its March 31-April 1 meeting, with future cuts depending on inflation and employment data. Westpac forecasts another rate cut in May, which could further support consumer sentiment.