July 13 (Bloomberg) -- Australian consumer confidence fell by the most since Lehman Brothers Holdings Inc. collapsed in 2008 as concern intensified about the European debt crisis.
The sentiment index plunged 8.3 percent to 92.8 from a month earlier, the biggest decline since October 2008 and the lowest level since May 2009, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers taken July 4-9 and released today in Sydney.
Reserve Bank of Australia Governor Glenn Stevens earlier this month held the overnight cash rate target at 4.75 percent for the seventh straight meeting, citing a weaker domestic growth outlook and Europe’s crisis. Prime Minister Julia Gillard’s carbon-tax proposal, which has dented her job-approval rating, has also restrained consumer optimism.
“A combination of concerns over the European financial crisis, the ongoing impact of the seven interest rate hikes between October 2009 and November 2010, and uncertainty about the introduction of a price on carbon are now really undermining the confidence of consumers,” Bill Evans, Westpac’s chief economist, said in an e-mailed statement.
The Australian dollar pared gains after the report. It bought $1.0621 at 12:02 p.m. in Sydney from $1.0637 immediately before the release. The so-called Aussie is up about 20 percent in the past year against the U.S. currency, the second-biggest gainer after the Swiss franc among G-10 currencies tracked by Bloomberg.
Every component of the index fell this month, today’s report showed. The sub-index tracking views on the outlook for the economy over the next 12 months dropped 13.5 percent and the gauge of views on family finances over the next year declined 4 percent, Westpac said.
Australia’s economy shrank 1.2 percent in the first quarter, the biggest contraction in two decades, as floods and a cyclone disrupted farming and mineral shipments from Queensland, the nation’s biggest coking coal-producing state. Recent reports support the central bank’s view that the recovery from the natural disasters has been slower than predicted.
A net loss of 5,400 jobs from April to June was the weakest quarter for Australia’s labor market since the first three months of 2001, when a U.S. recession began. Retail sales unexpectedly fell 0.6 percent in May, the steepest drop since October.
Falling business and consumer confidence have prompted economists to forecast Stevens will delay raising interest rates that are the highest in the developed world. Australia’s jobless rate, at 4.9 percent last month, compares with 9.2 percent in the U.S. and nearly 10 percent joblessness in the euro area.
Weaker retail sales and the stronger Australian dollar have weighed on business confidence, which fell to six-month low in June, according to a National Australia Bank Ltd. survey of 400 companies published yesterday. NAB forecast the central bank will keep borrowing costs unchanged until December. Previously it expected a rate rise in August.
The RBA board’s next scheduled interest-rate policy meeting is on Aug. 2.
The euro has declined this month as European finance ministers failed to present a solution to the financial contagion that’s threatening to spread to Italy from Greece, Ireland and Portugal.
“These conditions will hardly be conducive to the Reserve Bank raising rates,” Evans said in the statement. “We do not expect to see a change in rates for the remainder of this year, with an easing bias the most appropriate policy response to the current economic circumstances.”
--Editors: Brendan Murray, Malcolm Scott
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