Australian Consumer Optimism Rises to Two-Year High

By Jacob Greber

Aug. 12 (Bloomberg) -- Australian consumer confidence jumped this month to the highest level in almost two years, adding to signs the nation’s economy has skirted the worst global slump since the Great Depression.

The sentiment index gained 3.7 percent to 113.4 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Aug. 3 and Aug. 9.

Rising consumer confidence will help Australia’s economy expand faster than expected six months ago, according to central bank Governor Glenn Stevens, who said the bank’s next move may be to increase borrowing costs from a half-century low of 3 percent. The index has climbed 27.8 percent since May, the largest three-month gain since the survey began in 1975.

“The current surge has seen sentiment rise back into solidly optimistic territory,” said Matthew Hassan, a Westpac economist in Sydney. “As far as consumers are concerned, the worst of the current downturn appears to have passed.”

The Australian dollar fell to 82.62 U.S. cents at 12:26 p.m. in Sydney from 82.99 cents just before the report was released. The two-year government bond yield shed 2 basis points to 4.51 percent. A basis point is 0.01 percentage point.

Higher consumer and business confidence have “reduced the likelihood” Stevens will cut the benchmark rate below 3 percent, the bank said on Aug. 7.

Wages Growth

With “the cash rate at an unusually low level and the global economy stabilizing, movement towards a more normal setting of monetary policy could be expected at some point,” the bank said.

A report published today showing wages growth stalled last quarter may give Governor Stevens scope to keep borrowing costs unchanged in coming months.

Hourly pay rates excluding bonuses climbed 0.8 percent from the first quarter, when they rose by the same amount, the statistics bureau said today. The result matched the median estimate of 12 economists surveyed by Bloomberg News.

Traders forecast the central bank’s overnight cash rate target will be 179 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 12:21 p.m. in Sydney.

Cash Handouts

Prime Minister Kevin Rudd’s government distributed A$12 billion ($9.9 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, hospitals and ports.

Westpac’s Hassan said confidence has also been boosted by a report on Aug. 4 showing house prices rose 4.2 percent in the second quarter, helping pare most of the decline since the start of 2008.

“The other major positive was the surprisingly strong July labor-market result, which showed an unexpected rise in employment,” Hassan said.

All five components in Westpac’s confidence index rose this month. Expectations for economic conditions over the next 12 months jumped 11.2 percent after gaining 19.6 percent in July.

“We expect the Reserve Bank to begin the cautious process of ‘normalizing’ rates in early 2010 with a quarter percentage point increase in February,” Hassan said.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net