Australian consumers full of confidence

CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- Consumer confidence in Australia has risen for the fifth straight month to reach its highest level since 1999, a key survey released Wednesday shows.

The Westpac-Melbourne Institute survey says its index of consumer sentiment jumped by 2.7 percent to 116 in March, up from 112.9 in February.

That is the highest since early 1999, when the index briefly exceeded 116.

It adds to a growing picture of economic strength in Australia, with the National Australia Bank reporting Tuesday that business confidence is at "very robust levels", and national accounts figures last week showing the economy grew 4.1 percent in 2001.

Growth continuing

The NAB -- Australia's biggest bank -- said the main message from its survey was that the strong growth momentum of last year is continuing in the first quarter of 2002.

NAB senior economist Alan Oster said Tuesday he has lifted his growth forecast for 2002 from 3.25 percent to 3.75 percent.

Westpac, another of Australia's big four banks, says the consumer sentiment survey provides further evidence for strong growth in the first half of 2002.

It says consumers are confident about housing prices, the economic growth outlook, family finances, and household spending expectations.

'Surprisingly strong'

"There have only been three previous occasions in the 1990s when confidence has jumped in five consecutive months. Clearly, this is a surprisingly strong result," it said.

"To find sustainable strength above the current levels we need to go back to June-July 1994 when the index exceeded 120," it said.

The boost in consumer and business confidence, along with the strong growth outlook, is raising expectations that Australian interest rates will begin moving up from mid-year.

HSBC Australia senior economist John Edwards is tipping the earliest rise, saying this week that the Reserve Bank of Australia will start to tighten rates in June.

The official cash rate now is 4.25 percent, the lowest level in about 30 years.

Westpac's general manager of economics, Bill Evans, said Wednesday Westpac had brought forward its timing of the first rate rise to the September quarter.

Rates could hit 6.25%

Evans said the central bank would likely lift rates to 5.0 or 5.25 percent by year's end, and to a likely 6.0 to 6.25 percent in the first half of next year.

The Australian Bureau of Statistics released figures last Thursday showing the economy grew by a seasonally adjusted 1.3 percent in the December quarter over the September quarter, making it among the fastest growing developed economies in the world.

Economic commentators agree that along with the six interest rate cuts made by the central bank during 2001, one key factor in Australia's strong run is its competitive currency.

The Australian dollar traded at 50 to 52 U.S. cents for most of 2001, touching a record low of 47.75 cents last April when the global slowdown appeared to be at its worst.

It traded Wednesday at 52.00 cents, slightly softer from Tuesday. Most economists forecast it will reach 55-56 cents later this year.

However Sydney-based analyst IMA Asia is sticking with 52 cents for the whole of 2002 and 55 cents in 2003.