In the wake of Budget, the Westpac Melbourne Institute Index of Consumer Sentiment fell 7 per cent from 104.9 in April to 97.6 in May – the lowest since August 2012.
The index has fallen by 11.7 per cent, fully reversing the promising 9 per cent increase that was seen in February and March.
Westpac's chief economist, Bill Evans, said the survey for May took into account about the reactions to the Budget and the results confirm the 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,” he said.
“These concerns are also likely to have been fuelled by the surprise fall in the Australian dollar before and during the survey period.”
According to Evans the Index was actually 1.8 per cent higher in the post Budget period than in the pre-Budget period.
“That result indicates that the damage from the Budget occurred even before all details were known as respondents reacted to pre-Budget media coverage of the fiscal deterioration and some of the likely savings measures,” he said.
“There is some modest comfort for the government that the actual Budget details saw Sentiment slightly more positive than before its release but, nevertheless, still significantly negative.”
As for whether the Index will rise again, Evan said it only strengthens the case for another rate cut as early as June, which will hopefully spur some renewed confidence. “However, the outlook for business investment and the path of the Australian dollar will be important factors in that decision.”