Reserve Bank’s rate cut relief lifts consumer confidence to three-year high

The Reserve Bank’s long-awaited interest rate cut has lifted Australia’s consumer confidence to a three-year high.

The recovery in consumer sentiment — which began in the second half of 2024, but lost its way a little over Christmas and New Year — regained momentum in March, according to the latest Westpac-Melbourne Institute consumer sentiment index.

Westpac head of Australian macro-forecasting Matthew Hassan said the RBA’s decision in February to cut rates for the first time since late 2020, and further easing in cost of living pressures have provided a “clear lift”.

The most promising improvement was around buyer sentiment, which had been exceptionally weak over the past two years.

“The survey detail shows a broad-based improvement with a notable rise in confidence around the labour market outlook,” Mr Hassan said, adding the rosier outlook for unemployment suggested a “soft landing” had already been achieved.

While the unemployment rate lifted slighty to 4.1 per cent in January, it was still at historic lows.

CreditorWatch chief economist Ivan Colhoun said Westpac’s unemployment expectations sub-component improved sharply and at face value, suggested a fall in the jobless rate in coming months.

“That’s probably unlikely with global trade and tariff uncertainties building for business, but means the labour market is starting from a position of strength,” he said.

But there were still signs of unease, particularly around developments abroad, which Mr Hassan said reflected news around US President Donald Trump’s administration and his tariffs.

“Responses in March show that while consumers detected a marked improvement in the domestic news-flow, the news from abroad has become more troubling,” he said.

The Westpac survey results came the same day National Australia Bank revealed business conditions rose marginally in February. But there was a notable reversal in business confidence, largely offsetting the improvement recorded in January.

“In trend terms, conditions remain strongest in the services sector but are now weakest in mining which has had a weak start to 2025,” NAB chief economist Alan Oster said.

“The lift in confidence seen (in January) was not sustained into February and is now well below average again.

“This was despite the improvement seen in (the December quarter) GDP data and the RBA’s first rate cut, which suggests that businesses continue to be cautious about the outlook.”

Figures from the Australian Bureau of Statistics last week showed the economy grew by 0.6 per cent in the final quarter of 2024, meaning the country was no longer in a per capita recession.

Business conditions eased except in Victoria and Tasmania. Confidence fell across all States and Territories and industries.

“Overall, the survey suggests that activity measures in the survey continue to point to below average growth,” Mr Oster said, adding input cost pressures were a step above output price growth.

This pointed to the ongoing challenges faced by businesses despite economic activity showing some improvement in the second half of 2024.