-Bill Evans, Westpac chief economist
Consumer confidence in Australia unexpectedly rose in August, as Australians felt less pessimistic about the nation's economy and their financial positions. The Westpac-Melbourne Institute Consumer Sentiment Index bounced 7.8% to 99.5 points in August, from 92.2 points in July. Nevertheless, the measure remained below the key 100-mark threshold, indicating that pessimism prevails among Australian consumers. The index has been below 100 for ten of the last 12 months.
The persistence of weak consumer morale over the last year stems from the current state of the economy, where businesses are reluctant to increase investments and unemployment is close to the highest level in 12 years. The Reserve Bank of Australia has tried to boost demand by cutting interest rates twice so far this year to all-time low levels. The RBA downgraded its outlook for economic growth, with the central bank predicting further large declines in mining investment ahead. The RBA admitted that the outlook for consumption growth remains uncertain, but consumption should be supported by low interest rates and a decrease in savings. Moreover, the Australian economy has been hurt by lacklustre performance of China, the world's second biggest economy and Australia's top trading partner.
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