Australia Consumer Confidence Falls Most in 7 Months on Floods

Australian consumer confidence fell in January to a seven-month low on concern that flood damage in Queensland state will weaken the nation’s economy.

The sentiment index dropped to 104.6, the lowest since June, from 111 in December, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers taken Jan. 10-16 and released today in Sydney. Outside the disaster area, perceptions about the national economy and personal finances were “adversely affected” by the deluge, it said.

Reserve Bank of Australia Governor Glenn Stevens left the overnight cash rate target at 4.75 percent last month, after seven increases since October 2009, judging policy to be “mildly restrictive.” Higher borrowing costs helped slow third-quarter growth and savings have risen, even as energy and mining investments keep unemployment near 5 percent.

“Even before the advent of the floods, Westpac did not expect another rate increase until the second quarter of 2011,” Bill Evans, the bank’s chief economist, said in a statement. “These tragic developments are likely to delay the next rate increase to the second half of 2011. We confidently expect rates to remain steady following the board meeting on Feb. 1.”

The Australian dollar was little changed after the report, trading at 99.81 U.S. cents at 11:16 a.m. from 99.70 cents immediately before the release. The currency reached as high as $1.0005 in New York trading yesterday.

Death, Destruction

The deluge in Queensland may have killed as many as 32 people, devastated homes, destroyed crops and closed mines. The state capital, Brisbane, suffered its worst flooding since 1974 and Australia & New Zealand Banking Group Ltd. economists wrote in a research report yesterday that reconstruction in the northeastern state may cost as much as A$20 billion ($19.9 billion), or about 1.5 percent of gross domestic product.

“The survey period coincided with some of the worst days for the city of Brisbane,” Evans said. “Movements in the components of the index emphasized respondents’ anxiety with the short-term outlook.”

The confidence index’s measure of economic conditions over the next 12 months dropped to 97.6 from 115.7 in December, while the outlook for the next five years gained 0.2 point to 95.8, Westpac said.

The RBA said in minutes of its Dec. 7 meeting that “the restraint being shown by households, and the pick-up in the saving rate, would help reduce the medium-term risk from household balance sheets after a long period when debt ratios had risen, and would help to make room for the expected increase in investment.”

Australia’s economy slowed in the third quarter, with gross domestic product increasing at a 0.2 percent quarterly rate, the weakest pace since a contraction at the end of 2008. Savings as a share of disposable income climbed to 10.2 percent from July through September from 8.9 percent in the second quarter.