Confidence in the economy fell in August, households for 4th month in a row
Economic commentary by Jakub Seidler, Chief Economist of the CBA
Economic confidence fell further in August, reaching its lowest level since February this year. The decline in confidence continued for households, where four months of growth at the beginning of the year were replaced by four months of sustained decline, but also for businesses, where confidence declined in August for all segments surveyed, except for industry, where it rose slightly after a sharp drop in July. Households have a poorer assessment of the future economic situation and the outlook is also worse for entrepreneurs. In the case of industry, however, the outlook for future production has improved slightly, after its significant drop in July. Today's figures thus suggest that the second half of this year will not be too strong in terms of economic growth either, and businesses are expecting weaker demand for at least a quarter ahead. Also, the rapid rise in household confidence at the start of the year was probably driven by over-optimism, and households are still weighed down by the rising cost of living of the past two years and the poorer economic outlook, which has dampened their confidence in recent months.
Households:
Household confidence fell for the fourth month in a row in August, although the decline was less severe than in July. However, confidence has been declining since May, getting back to levels between February and March, partially correcting its strong rise at the start of the year. Households are generally less optimistic about the economic future and their own financial situation. According to the CSO, around a third of households say they are struggling to make ends meet with their current financial resources, and just under 10 per cent are having to dip into savings or borrow funds.
Businesses:
Business confidence fell in August in all monitored segments except industry. There, however, it improved slightly after a strong drop in July. Here, the development is attributable to the traditionally volatile sub-indicator "expected development of production in the next three months", which has been significantly affecting confidence in industry in recent months, and has now improved again in August after its sharp drop in July. Overall, however, industry expectations are more optimistic in August, both for demand and exports.
In services, on the other hand, expectations for demand over the next three months are the main reason for the decline in confidence, with the only sub-indicator in services that improved in August being employment expectations. However, in the case of construction, employment is also expected to decline and the assessment of current demand also declined in August. While builders improved slightly on the development of construction activity last quarter, the outlook for the future remains weak. In retail, expectations for the future also deteriorated slightly, however, after rising quite strongly in July.
The August confidence indicators thus only confirm the outlook of the latest macroeconomic forecasts that domestic economic growth will remain subdued this year (CBA consensus 0.9% for 2024), and that neither foreign developments nor domestic household consumption will meet the optimistic expectations from the beginning of the year.