Australian confidence in the economy has hit its lowest point since July 2015, according to the latest Westpac consumer sentiment survey.
Confidence plummeted 5.5% in October, above and beyond the forecast 0.3% decline, after the RBA cut the official interest rate again.
Commonwealth Bank senior economist Belinda Allen said the results show that rate cuts are actually scaring Australians with that negativity likely to weigh further on the economy.
Falling interest rates have got Australians running scared.
Consumer confidence is continuing to plummet, down a dramatic 5.5% in October to a four-year low, according to the latest Westpac sentiment survey. It comes after the Reserve Bank of Australia (RBA) cut rates for the third time this year to 0.75%.
"Consumer sentiment has fallen after each rate cut by the RBA and the reaction has been larger after each subsequent rate reduction," Commonwealth Bank senior economist Belinda Allen said in a note issued to Business Insider Australia. "The falls have been 0.6%, 4.1% and 5.5% after the June, July and October decisions respectively."
Ironically, that's the opposite of what the RBA had hoped would happen, with lower rates typically encouraging spending. However, as the economy has continued to weaken, the rate cuts now appear to only be scaring Australians off.
"The consumer has been on the downside-risk-list for Australia for some time now. There had been hope that lower interest rates, tax rebates and now rising house prices would help elicit an improvement in consumer spending in late 2019," Allen said.
Those cuts appear to now have spooked consumers into saving with more cuts potentially endangering the impact of tax refunds as well, Allen warned -- a major problem given retail spending has long been falling.
"Persistently weak consumer sentiment does raise the risk that we do not see an ongoing lift in consumer spending. The RBA have noted they expect to see half of the rebate spent and half to be saved. A more negative view of family finances apparent in the sentiment figure does place this expectation at risk," she said.
Breaking down the survey, Aussies are particularly anxious about where the economy will be in 12 months and five years. Nonetheless, house price expectations remain strong, with sentiment up more than 50% since May – consistent with a rebound in Australia's largest two markets.
Bizarrely, despite that, it's mortgagers that are more spooked than tenants and those who own their home outright.
"The mortgager has experienced the largest fall in sentiment despite being the largest beneficiary of lower interest rates," Allen said.
In light of the results, CBA continues to be of the view the government needs to spend more and take the pressure off the RBA to right the economy.
"We have been saying for a long time now that extra fiscal support in the way of further personal income tax cuts and more infrastructure spending would be more beneficial than taking the cash rate lower. The evidence on the efficacy of lower interest rates is sending some negative signals," Allen said.