Consumer confidence in Australia falls to lowest level since June 2010

Australian consumer confidence declined in May to the lowest level in almost a year after the government announced a budget that will end 23 years of inflation-adjusted spending growth.

 

The sentiment index fell 1.3 percent to 103.9 from a month earlier, according to a Westpac Banking Corp. (WBC) and Melbourne Institute survey of 1,200 consumers taken May 9-15 and released on May 18 in Sydney.

 

Reserve Bank of Australia Governor Glenn Stevens this month held the overnight cash rate target at 4.75 percent, after seven increases from October 2009 to November last year that helped spur the currency to a record. Reports this month showed retail sales stagnated in the first quarter and employment dropped in April by the most since 2009, while the RBA said higher rates will likely be needed “at some point” to contain inflation.

 

“The result is still sending a subdued message about the state of the consumer today,” Bill Evans, Westpac’s chief economist, said in an e-mailed statement. “Responses to a special question in this survey pointed to the budget being poorly received with respect to respondents’ assessments of their own finances.”

 

Evans said the central bank’s indication in a May 6 statement that it will need to tighten monetary policy prompted him to forecast the RBA will raise rates by a quarter percentage point to 5 percent at its June 7 meeting.

 

The Australian government forecasts mining investment of A$76 billion ($81 billion) next fiscal year as companies including BHP Billiton Ltd., the world’s No. 1 mining company, expand output to meet demand from China and India. The buildup has spurred hiring and prompted the RBA to predict the unemployment rate will fall to 4.25 percent by December 2013.

 

Chinese nuke plants could power Australia

It will soon be possible for Australia to import nuclear power plants made in China, a nuclear policy expert says.

 

Former Australian Nuclear Science and Technology Organization (ANSTO) chair Ziggy Switkowski says the “centre of gravity” for innovation and manufacturing of nuclear power is moving quickly to China.

 

The cost to manufacture nuclear components in China was likely to be around 60 per cent of that in Western countries, he said.

 

Mr. Switkowski made the comments during a panel discussion on Australia’s energy future - and the use of nuclear power - in the wake of Japan’s Fukushima disaster.

 

“When we are ready to get involved in nuclear power, we will look in a catalogue, pick up the phone and place an order on a Chinese vendor, who will deliver it at a price that we can afford,” Mr. Switkowski told a Committee for Economic Development of Australia luncheon on May 18.

 

“Today there are 60 reactors being constructed around the world and I think 27 of them are being constructed by the Chinese.

 

“The Chinese are rapidly building up expertise and experience in building nuclear power stations.”

 

Moody’s bumps big four banks down

The agency says that the banks remain strong but that the global financial crisis has shown that the wholesale markets, which provide 40 per cent of their funding, cannot be relied upon.

 

“While the major banks have reduced their sensitivity to disruptions in the wholesale funding markets, the Australian financial sector’s long-term, underlying reliance on offshore debt remains in place,” the agency’s senior vice-president, Patrick Winsbury, said on May 17.

 

Australia’s banks have more than $330 billion in long-term bonds issued to international investors and a further $100bn in short-term debt that must be continually rolled over.

 

The Moody’s cut to the banks’ ratings, from AA1 to AA2, brings them into line with their ratings from the other two big ratings agencies, Standard & Poor’s and Fitch.

 

After the downgrade, Wayne Swan’s office noted that there were only four international banks with higher credit ratings from Moody’s and nine at the same level.

 

The Treasurer said Australia still boasted one of the strongest and most resilient banking systems in the world. “Our banks are well-capitalised and did not engage in the risky lending practices seen in some other countries due to their sound management and years of tough supervision by our world-class financial regulators,” the Treasurer said.

 

Market analysts said the downgrade would have little effect on the banks’ funding costs, but it could lead banks to become more cautious about growth in their lending.

Moody’s warned that the commodities boom supporting the Australian economy and the banks might not be sustainable.

 

“With the domestic economy increasingly biased to the commodity sector, terms of trade that are exceptionally favourable by historical standards, and high asset prices, there is a potential for confidence shocks to impact the banks’ access to funding,” Moody’s said.

 

The downgrade follows a warning delivered on May 17 by new Treasury secretary Martin Parkinson that China’s economy was at risk of volatility as it tried to bring inflation under control.

 

Moody’s said the appetite of the mining industry for imported capital equipment for its massive investment program ensured that Australia would continue to run balance of payments deficits. This meant that the banks would have no choice but to remain dependent on international borrowing.

 

It said most household savings were channelled into superannuation and were not available for the bank deposits. The superannuation funds put a much smaller share of their investments into fixed-term deposits than do similar institutions overseas.

 

Moody’s said that when companies started borrowing again, the level of deposits would fall.

 

Made-in-Australia label stumps shoppers

The Made in Australia label confuses shoppers and needs to be overhauled, says consumer magazine Choice.

 

A Choice survey found 99 per cent of respondents did not clearly understand the country of origin labels despite about half of those shoppers wanting to buy Australian products.

 

The Made in Australia from imported and local ingredients was the best understood of the four label variations, which include Made in Australia, Product of Australia and Australian Grown.

 

But Choice found 85 per cent of respondents wanted that label to go further and disclose the origin of the main ingredient in the product.

 

Choice spokeswoman Ingrid Just said shoppers wanted to support Australian producers but the labels were not helping them.

 

“Our members tell us time and time again that they want clearer, more informative country of origin labels that detail specifically where the main ingredient comes from,” Ms Just said.

 

“In their current form, the country of origin labels are just too confusing.”

 

Choice has called for country of origin labels to cover more products and a single regulator set up to oversee labeling standards, in a submission to the Labeling Review Panel.

 

That panel recently recommended extending country of origin labels to all primary foods such as beef, poultry and pork.

 

Ms Just said the clock was ticking on the federal government’s promise to respond to the Labeling Review Panel’s recommendations by the end of 2011.

 

“We have an opportunity right now to create informative and easy to understand labels that help people buy Australian products,” Ms Just said.

 

“It would be an incredible blow to consumers, local producers and businesses if that opportunity was wasted.”

 

Qantas pumps up loyalty program

Qantas has stepped up efforts to stop lucrative business travelers defecting to the newly renamed Virgin Australia by bolstering its frequent flyer loyalty program.

 

Months before Virgin is due to revamp its own loyalty program, Qantas unveiled changes to its frequent flyer program on May 17, such as increasing the bonus points earned for flying in premium cabins and making Optus an alliance partner. The latter means Qantas’s loyalty program members will be able to earn points from Optus’s consumer and small-business products.

 

Qantas’s loyalty program is regarded as one of the biggest advantages it has over Virgin in attracting corporate travelers. The frequent flyer division has consistently been Qantas’s biggest contributor to earnings, and helped maintain its investment-grade credit rating.

 

‘‘We know the frequent flyer program is a huge driver of people’s behaviours,’’ Qantas’s chief executive, Alan Joyce. ‘‘We think that once again this will set our program apart from the rest.’’

 

The airline expects to increase its loyalty program membership from 7.8 million to 8 million by the end of June. It would not put a figure on how many more members it expected to gain from the Optus alliance, which will not be completed until later this year.

 

Virgin plans to unveil changes to its Velocity program by September, including more perks for members and the chance to earn and use points on more items. It has about 2.7 million members.

 

The airline has changed its name, upgraded airport lounges and extended its route network through alliances in a bid to boost its share of the corporate travel market from about 10 per cent to 20 per cent.

 

But Mr Joyce said Virgin’s attempt to snare a bigger share of the corporate travel market had also given Qantas’s low-cost offshoot, Jetstar, ‘‘an opportunity at the leisure end’’.

 

Although Jetstar historically bears the brunt of a slowdown in consumer spending, Mr Joyce said it was not the case this time as the budget subsidiary was ‘‘going very well compared to where retail sales are’’. Jetstar earns about 20 per cent of its revenue from ancillary charges such as those for meals.

 

Despite jet fuel prices falling about 12 per cent over the last month, Mr Joyce said Qantas was a ‘‘long way from recovering’’ a higher fuel bill. The airline would consider further rise in surcharges unless the jet fuel price dropped ‘‘quite dramatically from where it is’’.

 

Macquarie Equities analysts say Virgin’s challenge will be to close the gap between its loyalty program and Qantas’s, which would be helped by snaring Coles as a partner. Coles’s FlyBuys program has 10 million members. ‘‘If customers become indifferent to earning points on their Qantas or their Virgin Velocity programs, then Virgin should be better able to compete on price and service level,’’ they said.