Deloitte has done a good job quantifying the boom in household savings during the current lockdowns across NSW, Victoria and the ACT. Deloitte contends that the savings war chest will provide the economy with a strong consumption bounce once lockdowns end:
The latest data released by APRA indicates households are likely to have a hefty pool of savings to spend when restrictions ease. Once again, household deposits have jumped during the current lockdown, continuing a familiar story since the onset of the pandemic.
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Last year, restrictions on movement and a collapse in confidence saw households rein in discretionary purchases. Added to that, generous government supports such as JobKeeper and the doubling of JobSeeker saw the incomes of some families rise. Combined, these factors lifted the household saving rate to a record high of 22% in June 2020.
Savings are again surging in this current lockdown. In part, this reflects the same drivers as last year – confidence is down (though not nearly as much) and many businesses have had to temporarily shut their doors. Government supports are also up. The COVID Disaster Payment has already injected $9.1b into the economy, and new state payments have also added at least $12b.
While the mishmash of state/federal supports is certainly less encompassing than earlier JobKeeper supports, there are still a lot of dollars attached to them. And that sets the scene for a promising recovery as restrictions ease.
Just as they did through 2020, we can expect households to draw down some of these excess savings when cafés, bars, clubs and restaurants throw open their doors in the very near future.
Sydney will exit lockdown on Monday, and it will be interesting watching how household spending responds given the virus will still be running rampant through the economy.
My gut feel is that the Australian economy as a whole will inevitably experience a strong bounce, but that it won’t be as strong as the V-shaped rebound experienced last year, since:
- Virus cases will likely explode across Australia once we reopen, which will lead to caution. In particular, COVID-free states like Queensland, Western Australia and South Australia will experience the negative shock of going from zero cases to thousands.
- The reopening of the international border will see some spending leak out of the economy as Aussies spend tourism dollars overseas instead of domestically.
- The economy will face headwinds from the crashing iron ore price and dwelling construction from 2022 as the HomeBuilder stimulus fades.
- Australian property prices are also likely to slow into 2022 as affordability bites and macroprudential restrictions curb mortgage demand.
Hopefully I am wrong and last year’s rebound is replicated.