Consumer confidence has fallen at the fastest rate since 2008 after the Abbott government delivered its first budget last week and has dropped a sharp 14 per cent in the past four weeks.
The ANZ-Roy Morgan Consumer Confidence report – the first of first of its kind released post budget – has forecast households will rein in spending, with most people believing they will be worse off than they were a year ago during the depths of the Labor's leadership crisis.
The report follows economists last week predicting that the government's tough budget could drive confidence to recession levels and delay further interest rate hikes until late next year.
ANZ-Roy Morgan's consumer confidence index fell 3.2 per cent to 100.4 points in the week ending May 18, with the decline beginning about four weeks ago when the federal government began leaking significant policies unveiled in the budget.
Since then consumer confidence has plunged 14 per cent – its sharpest fall over a four week period since the reports became weekly in 2008.
This suggests, according to ANZ's head of Australian economics (corporate and commercial) Justin Fabo, that ''households could pull back some spending''.
''Respondents' perceptions of 'financial situation compared to a year ago', which is most correlated with households' spending growth, suggests consumer spending could soften in the near term,'' Mr Fabo said.
''This sub-index fell 3 per cent last week and has weakened notably over the past two months.''
Still, Mr Fabo said ANZ expected consumer spending would improve this year. But the budget – which included cuts to welfare, pensions, a debt tax as well as higher petrol and medical prices – would weigh on the speed of that recovery, he said.
''Consumer confidence has declined a sharp 14 per cent over the past four weeks, suggesting that households could pull back on some spending in the near term.
''The persistence of this fall will, however, be important to the assessment of the consumer spending outlook. We will continue to watch consumer confidence closely in coming weeks."
Over a comparable period to May readings of other Australian consumer confidence measures, the ANZ-Roy Morgan consumer confidence pulse is down almost 12 per cent month on month.
Mr Fabo said ''interestingly, all other subindices fell last week except for perceptions of economic conditions in the next five years, which rose modestly (up 1 per cent)''.
The report follows NAB business confidence reading edging higher in April to six, from four in March. NAB chief economist Alan Oster said last week the result was ''surprising'' given the rhetoric in the lead up to the budget. He said all eyes would be watching the results of next month's survey.
Westpac will release its consumer confidence index on Wednesday.