Confidence among households with a mortgage has dropped almost 10 per cent in the past month due to concerns the central bank will start raising the cash interest rate earlier than expected.

The overall Westpac-Melbourne Institute consumer sentiment index fell by 0.9 per cent to 95.8 points in April and its lowest level since September 2020, when COVID-19 pandemic fears were dominating.

An index below 100 indicates there were more pessimistic respondents in the monthly survey than optimists – a negative for future household spending.

Confidence amongst respondents with a mortgage fell by 9.2 per cent in April, while 70 per cent of consumers expect interest rates to rise in the next 12 months, up from 67 per cent last month.

The proportion of consumers expecting rates to increase by more than one percentage point from from 30 per cent in March to 36 per cent in April.

Westpac brought forward its forecast for the first Reserve Bank of Australia rate rise to June, following last week’s RBA board meeting.

“Once the tightening cycle begins, we expect a series of rate hikes in most months in 2022,” Westpac chief economist Bill Evans said.

“Further increases can be expected in the first half of 2023 as wage pressures threaten the outlook for inflation. We expect the cash rate to peak around two per cent in the cycle by June next year.”

Credit reporting agency CreditorWatch believes interest rates and inflation pose the biggest risk to the business outlook, warning of increased insolvencies in the short to medium term.

Releasing its monthly business risk report, it found court actions were at their highest since March 2021, while trade payment defaults are at their equal highest point since October 2020 – a leading indicator of rising insolvencies.

“I remain cautious about the timeframe for trade activity to return to pre-COVID levels,” CreditorWatch CEO Patrick Coghlan said.

“There is still so much uncertainty out there, and with inflation on the rise and interest rate increases looming, consumers may be reluctant to open their wallets too much.”

Other factors pointing to a bumpy economic outlook include COVID-related supply chain disruptions, labour shortages, fuel price rises and the impact of the floods along the east coast of Australia.

CreditorWatch believes the probability of default in the hospitality industry increased in March given it depends on discretionary spending, which is expected to suffer at the hand of rising inflation and interest rates.

Among the regions, flood-affected Lismore unsurprisingly showed a greater risk of default, although remains well below the national average.

Meanwhile, the online platform SEEK has seen a record run of job advertisements extended by another month.

But in a further sign of a tightening labour market, such demand for staff is not translating into applications.

In March, jobs ads rose by a further five per cent to the highest level in SEEK’s 25-year history, after record numbers in January and February.

Jobs ads were 32.2 per cent higher than a year earlier.

Also, for the first time, there was a record level of jobs ads in every state and territory in March.

“This makes for an increasingly tight job market,” SEEK ANZ managing director Kendra Banks said.

“While interest among candidates remains consistent, as indicated by candidate visits to site staying strong, the low levels of applications per ad are not matching the persistent demand for talent.”

Applications per job ad decreased 4.5 per cent in March.


Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)