Budget weakens consumer optimism

The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 7 per cent in May, from 104.9 in April to 97.6.

Westpac's chief economist Bill Evans said the result pushes the index back into the area where pessimists outnumber optimists for the first time since October 2012.

“It is the lowest read since August 2012,” Mr Evans said.

Over the past two months, the index has fallen by 11.7 per cent to fully reverse the promising 9.0 per cent increase the market saw in February and March.

“Of course, the remarkable aspect of this result is that it is the first read of the index since the Reserve Bank cut the cash rate by 0.25 per cent on May 7. Absent any other major influences, we would have expected a solid boost to the index following that rate cut,” he said.

“However, since the rate cut we have seen the announcement of the Federal Budget.

“In this survey we added an additional question around respondents' assessments of the Budget and the results confirm our reasonable assumption that this weakness in confidence is being driven by a sharply negative response to the Budget.

“We expect that the dissatisfaction is not only due to concerns around some of the savings measures in the Budget but also the sharp deterioration in the fiscal position, indicating renewed fears about the overall state of the economy.

“These concerns are also likely to have been fuelled by the surprise fall in the Australian dollar before and during the survey period.”