Roy Morgan Research reports that, for the first time in 2006, Consumer Confidence is down, losing 4.3 points to 120.1.

It seems that the end of the Commonwealth Games extravaganza, during which the government released its apparently unpopular Industrial Relations reforms, brought with it a hangover that will punish both retailers and the government alike. The 4.3 point drop, the first real decline in the index since October 2005, communicates a substantial decrease in the Australian consumers’ confidence in the economy.

The Industrial Relations reforms, opposed by 57% of Australians, may lead the Australian people to believe that their wages aren’t as secure as they had previously thought. (See Henry’s survey here.) The main driver in this month’s change in the Consumer Confidence index are expectations of the economy in the coming year, with an extra 5% of respondents believing in March that there are bad economic conditions to come in the next year. An extra 4% of respondents also believe there are bad economic conditions to come in the next five years.

The fluctuating exchange rate, starting March at just below 75c, down to 70.6c on March 27, now back up to almost 73c on Friday, could also have something to do with the reduction of consumers’ confidence. The price of unleaded petrol soaring above $1.30 per litre late last week is probably also relevant, as is the renewed talk that the next move in interest rates is likely to be up, possibly as soon as May 3.

The repeated revelations that the gummint was either asleep at the wheel, grossly naive or are telling porkies about the wheat-for-oil scandal may also be taking their toll.

Ray Block raises another, more esoteric, worry, the possibility of a US-China trade war. He concludes: “All thinking people in Australia should take heed of what is going on in Washington. If it turns ugly for China before the November US elections, it will have considerable consequences for the Asia-Pacific region, given China’s significant trade with other Asian countries, particularly Japan and Korea, leading eventually to lower growth in the region. Inevitably, a lot of Australia’s encouraging growth would disappear over night.”

Is the “nirvana economy” about to experience some harder times?

Read more at Henry Thornton.

Peter Fray

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