The Melbourne Institute’s latest Taking the Pulse of the Nation survey shows that 45% of Australians are spending less now than prior to the onset of the COVID-19 pandemic. The survey also shows that 33 per cent of respondents still expect to be spending less at the end of 2020 compared to pre-coronavirus levels, while 39 per cent expect to be spending the same amount as before COVID-19. Accordingly, this weak spending will hamper the economy’s recovery:
In this wave, we also asked respondents about their spending. When asked to compare their total spending now with the pre-COVID19 days at the beginning of the year, 33% said they are spending the same but 45% said they are spending less. When asked to think about their future spending (specifically, to compare their expected spending at the end of 2020 with that at the beginning of 2020), 39% expect their total spending to be the same as in pre-COVID days while 33% expect to be spending less. This indicates a concern that life will not be back to normal.
The spending situation varies across the States. Consider the net proportion spending less (i.e. subtract the proportion saying they are spending more from the proportion saying they are spending less). Figure 1 (left) shows that this net value is positive with lower net balances for December 2020 relative to January 2020. This means that while spending will improve (towards the end of the year), the expectation is that spending will, on balance, still be less than before COVID-19. This is serious as household consumption expenditure is already low.
Figure 1 (right) shows that household consumption expenditure fell in all States, from positive quarterly growth in December 2019 to negative values in March 2020. Consumption growth is expected to be also negative in the June quarter, but beyond that, further declines in spending will seriously hamper the economic recovery process.
Australia’s household consumption expenditure was already in the toilet before COVID-19 hit, registering its first annual fall since the GFC in the March quarter:
Given household consumption accounts for around 55% of Australia’s final demand, further falls will obviously represent a hammer blow to the economy.