Confidence Rises As Rate Cuts Kick In

The Age

Thursday December 11, 2008

VANESSA O'SHAUGHNESSY, INVESTMENT REPORTER, and NATALIE CRAIG

WHILE the World Bank is acknowledging the risk of a worldwide recession, Australia's economy has proved more resilient than expected.

Consumer confidence was up by 7.5 per cent this month, as interest rate cuts, lower petrol prices and some gains on the sharemarket outweighed global gloom.

Since hitting a low just a few months ago, the Westpac-Melbourne Institute consumer sentiment index has risen 16.4per cent.

Westpac chief economist Bill Evans said the negatives could have overwhelmed the positives. But, when combined with home loans data, they presented a better picture than expected.

"The good news on interest rates is finally getting some traction," he said.

In contrast, the World Bank said the prospects for economic growth had deteriorated substantially. It predicted the global economy would grow by 2.5 per cent in 2008 and by 0.9 per cent in 2009, dragged down by the most developed economies.

But, despite the efforts of many governments worldwide, the World Bank said it could not rule out a global recession.

Nevertheless, the Australian market gained on local data, rising 36.4 points, or 1 per cent, to 3640.7 points.

Fortescue Metals, Asciano and Australian Agricultural Co were some of the better performers, while Westpac led the market lower, returning to trade after a capital raising.

Slightly more home loans were made in October than in September - up 1.3 per cent.

The tripling of the Federal Government's first-home buyer's grants for new houses to $21,000 helped boost loans for new dwellings by 3.5 per cent, in seasonally adjusted terms.

But home finance reached its lowest growth level in 25 years in September, and analysts were hoping for a bigger improvement from such a low base.

CommSec economist Savanth Sebastian had predicted house lending would improve 4.5 per cent on the back of a 1 per cent cut to official interest rates in October.

"The fact that we had seen a significant pick-up in interest for home loans, even in terms of what our website was seeing, made us quite hopeful," he said.

"It's just a matter of that interest turning into signed contracts, and that's just not occurring yet.

© 2008 The Age

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