Bali blasts to hit Australian consumer confidence

Bali blasts to hit Australian consumer confidence

Phil Smith, Reuters, Sydney

The weekend bomb attacks on the Indonesian holiday island
resort of Bali that killed nearly 200 people, many of them
Australian, are likely to have a knock-on but fairly short-term
impact on the Australian economy.

Kuta, where the attacks ripped through nightclubs filled with
young Australians, is seen as a de facto Australian resort so
consumer confidence and spending patterns could take a hit in a
country unused to such horror on its doorstep, analysts said on
Monday.

Australians have sat spellbound as local media showed images
of charred bodies and badly burned victims after what was the
worst strike against civilians since the September 11 hijacked
aircraft attacks on New York and Washington.

"For Australian markets and the Australian economy, the
bombings will have an unfavorable but probably temporary effect
on consumer confidence," said HSBC chief economist John Edwards.

The government has said 15 of its nationals were confirmed
dead and about 220 unaccounted for. The nationalities of many of
the 183 bodies recovered from the blast scene have yet to be
determined.

The major economic point about the bombings is that it will
likely stay the Reserve Bank of Australia's (RBA) hand when it
meets to decide on rate policy in November.

"Whatever chance there was of a November Reserve Bank of
Australia rate rise has probably been reduced to zero," HSBC's
Edwards said.

The RBA has left the key 4.75 percent cash rate unchanged
since June as global uncertainty saw world markets fretting over
the pace of growth. The cash rate is still a long way short of
what is seen as neutral policy around 5.5 percent.

In isolation, the events in Bali will not have a lasting or
major economic impact in Australia, but taken in the context of
what is seen as an escalation of violent attacks worldwide the
bombing could be more significant.

"There has been an escalation of this kind of activity and
that adds to uncertainty to the general macro backdrop," said
Deutsche Bank senior economist Tony Meer.

He was referring to the recent shooting of a U.S. Marine in
Kuwait, a suspected attack on a French supertanker in the Gulf of
Aden and a suspected terror cell that was broken up in Italy.

"You should not overplay the broader implications of it (the
Bali bombing) but putting it in context, it is a continuation of
the global uncertainty," Meer added.

Jitters over a U.S. strike on Iraq if it fails to disarm has
caused major world markets to tumble in recent months.

In the medium term, if Australians are encouraged to spend
holidays at home rather than abroad the impact of the Bali
bombings could perversely be positive as domestic holiday
expenditure provides an offset.

On top of this, interest rates may be kept lower than perhaps
they would have been and there may be more spending by the
Australian government on security.

Nevertheless a near-term knick to confidence is unavoidable.

Analysts said October's Westpac-Melbourne Institute consumer
sentiment survey index on Wednesday will no doubt show a sharp
downturn as it was conducted over the weekend of the bombings.

The index rose 2.7 percent in September to 108.5 from 105.6 in
August following a cumulative 6.5 percent fall over the past two
months.