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Australian consumer confidence sags
By Geoff Hiscock
SYDNEY, Australia (CNN) -- Consumer confidence in Australia plunged sharply in February under the weight of global tensions, stock-market weakness and the nagging impact of drought. The consumer sentiment index compiled by Westpac Bank and the Melbourne Institute fell 7.8 percent month on month to 99.7, the lowest level since May 2001. The survey data, released Wednesday, follows a 5 percent rise over the previous three months. A level below 100 indicates more respondents are pessimistic than optimistic about conditions ahead. Westpac and the Melbourne Institute cited a number of contributing factors in the decline, including the Iraq situation and its effect on household discretionary income through the rise in petrol prices. They said the widespread bushfires and the ongoing drought in Australia -- where some parts of the country have not seen useful rain for a year or more -- were also hurting confidence. Interest rates steadyThe survey also cited the lack of movement on interest rates, with Australia's official cash rate steady at 4.75 percent since June last year. "The decision by the Reserve Bank of Australia to leave interest rates unchanged in January failed to prevent a sharp 12.2 percent decline in sentiment among respondents with a mortgage," the compilers said. Some analysts see a rate cut likely by mid-year, following the bank's quarterly statement on the economy this week, in which it said the case for higher interest rates had weakened. "There is a risk that the recent international weakness will become more protracted and will weigh more significantly on growth in Australia than it has done to date," the bank said on Monday. (Full story) Economic growth in Australia has slowed to an annual rate of about 3 percent a year, as the long-running housing boom begins to run out of puff. Loss of productionThe severe drought that still grips much of Australia has also had a severe impact on agricultural production, with the government's commodity forecaster ABARE seeing a loss of 0.75 percentage points in gross domestic product attributable to the dry spell. In a commentary Wednesday, HSBC Australia senior economist Anthony Thompson said the fall in consumer sentiment was surprising, but the survey components that matter most for consumer spending were "relatively resilient." He said that in contrast to a month-on-month fall of 18.2 percent for the one-year economic outlook, the one-year family finances outlook index fell 3.1 percent and the "good time to buy major household items" index fell 3.4 percent. A survey by the National Australia Bank on Tuesday showed that Australian business confidence in January fell to a 12-month low, as worries about the market downturn and the tensions over Iraq intensify.
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