The Westpac–Melbourne Institute Index of Consumer Sentiment rose 12.7% to 100.1 in June from 88.8 in May. This was second largest amount since the survey began in 1974 and the largest increase in 22 years.

Westpac Chief Economist, Bill Evans, said the dominant factor behind the rise was likely to be the release of the March quarter national accounts last Wednesday, which registered a small growth rate for the Australian economy following the contraction in the economy in the December quarter.

“That result was widely hailed in the media as indicating that Australia had avoided a recession,” Mr Evans said.

“From the consumer's perspective that was extremely encouraging news since they had already benefited from a 385 basis point cut in the variable mortgage rate; and around $14 billion of direct government transfers with another $5 billion to come.”

Mr Evans also pointed to the fact the unemployment rate had fallen to 5.4% in April, therefore giving consumers further confidence.

In 2001 the word “recession” saw the index fall by 13.2% following the release of the previous quarters results, which showed negative growth.

Mr Evans said the reaction was a result of media foreshadowing a recession. Once the March quarter results showed the economy had rebounded, the Index soared 11.6%.

Last weeks figures showed domestic spending had fallen by 1% – the sharpest fall since December quarter 2000, while a 7% contraction in imports allowed net exports to add to GDP.

This in turn saw the overall GDP growth being in positive territory.

“We expect this net export effect to partially reverse in the next two quarters with GDP registering consecutive negative quarters of growth a re-establishing the "recession" label,” Mr Evans said.

“This points to a potential negative shock to sentiment when the June quarter GDP figures are released in September.”

A rise in global share markets and other financial assets could have also contributed to the rise in sentiment.

Prior to the latest figures, the index had increased by 3% since the government started providing the economy with stimulus, with the small rise attributed to consumer concerns regarding job safety and financial well being.

“With those concerns apparently allayed in the eyes of consumers this surge in the Index can be seen as a delayed response to the significant stimulus over the last 9 months,” Mr Evans said.

“If as we expect we are likely to see substantial increases in the unemployment rate over the next 12 months then, as we saw in the early 1990's, consumer sentiment will remain under considerable downward pressure.”

The only one of the five components of the index not to increase was time to buy major household items.

Results of the report included a 5.7 ppts drop in the proportion of respondents who assessed banks as the wisest place for their savings, while the proportion of respondents who favoured shares increased by 5.6 ppts.