Rate cuts ravage consumer confidence: Deloitte

Although disposable income has risen as taxes and interest rates were cut, Australians are increasingly holding saving their money rather than spending it.

“That isn’t usual,” Deloitte wrote in its Business Outlook report.

“Whereas the slowdown in the economy had been partly fuelled by an inability to spend, it is now dominated by an unwillingness to spend. In the past few months, the pace at which families are saving has been jumping at much the same rate that it did when the global financial crisis hit.”

If families had spent the usual share of extra money generated by the measures like tax cuts than economic growth might have continued closer to trend.

Deloitte believes that the RBA’s successive rate cuts have had a negative impact on consumer confidence due to the bank’s inability to communicate their necessity and effects to the public.

“There’s a large gap between what the RBA is saying, and what families and businesses are hearing,” the report reads.

“The RBA is boosting the economy both because it is weaker and because it is different. The first factor should worry families and businesses, but the second – a different economy, with more profits and more jobs but less by way of wage gains – is a mixed blessing.”

Deloitte also lays some of the blame for the unusually low consumer confidence on the drought – which is now approaching the level of the Millennium Drought – bushfires, and a world that’s increasingly being run by “dumbos and dictators”.

But the record low consumer confidence risks becoming a “self-fulfilling prophecy” that could cause sluggish job and wage growth and a weakening Australian dollar as consumers hold onto their cash. And an unexpected crisis – such as an escalation of the US-China trade war or a shooting war with Iran – could throw the already fragile economy out of kilter.