- Australian spending is still rebounding, as the Commonwealth Bank notes Australians are opening their wallets as confidence returns.
- Health and fitness, education, cars and property saw the biggest improvement in May, according to new data.
- It has helped push business confidence to a 7-year high, as recorded by Roy Morgan.
- Visit Business Insider Australia’s homepage for more stories.
As Australians grow increasingly confident in the economy, they’re loosening the pursestrings and helping push the recovery along.
The Commonwealth Bank (CBA), using Google data as well as its own, believes along with Treasury, that a $200 billion-plus savings buffer is flowing out of bank accounts and into cash registers.
“Together with the strong labour market and positive wealth effects from rising dwelling prices, we expect consumer spending to support Australia’s economic growth in 2021,” CBA senior economist Belinda Allen said.
CBA’s data shows Australians were intending to spend more on health and fitness, education, motor vehicles, and housing in May than they were in previous months.
“Compared to May 2020 we are seeing more spend on the type of routine, preventative health care such as dentist and orthodontist visits, medical laboratory testing and optometrists. Many of these services were shut during the lockdown period and many people simply put this type of care on hold last year,” Allen said.
Other areas went sideways as ongoing restrictions prevent a fuller recovery.
“Despite the recent improvement, we’re seeing the lasting impact of Covid travel restrictions and international border closures on Australia’s education sector, particularly universities,” Allen said.
“The current lockdown in Victoria has had an immediate impact on consumer spending as seen in the weekly CBA credit and debit card spend data. However, past lockdowns have shown that spending momentum returns once the lockdown ends.”
The seemingly endless appetite for property meanwhile has underscored record lending growth in recent months, and continued on unabated, despite soaring prices. Separate ABS data on Thursday showed that for the first time the average price of residential properties in New South Wales has exceeded $1 million.
“We continue to expect the housing market to be a key source of support for the economy in 2021 and we expect residential dwelling prices rise 14% over 2021 and 2022,” Allen said.
While there are legitimate and serious fears over the consequences of the hot market, the report is largely positive in underlining the strength of Australia’s economic recovery, with only retail spending intentions declining.
It has helped bolster business confidence in turn, hitting a 7-year record over the weekend according to Roy Morgan.
Seven in ten businesses reported expecting economic “good times” over the next 12 months, with the overall index marking its best start to a year since 2011. Given Melbourne, the country’s second-largest city, has only just emerged from its fourth lockdown, the result is indicative of the resurgence in confidence over the last 18 months.
RBA unlikely to pull the supports out just yet
Separately, the Reserve Bank of Australia (RBA) published its meeting minutes on Tuesday, repeating that it expects wage growth to be only “gradual and modest”, despite lower unemployment due to a higher number of Australians open to work.
“While a faster pick-up in wages growth was possible, members continued to expect a gradual increase in the following few years, as spare capacity in the labour market was steadily absorbed,” the RBA said.
“The RBA appears at pains to point out a variety of reasons as to why wage outcomes will remain low despite things being very different today than compared with pre‑COVID,” CBA head of economics Gareth Aird said in response.
Indeed, Aird and his economics team do expect the RBA to be surprised by just how different the economy may act this time around, after decades of fairly muted pay growth. They forecast 2.7% growth, citing skills shortages, bumper savings, as well as easy and prolonged stimulus.
Certainly the RBA is reluctant to end its easy monetary policy. In its minutes it noted “[board] members thought it would be premature to consider ceasing” the bond buying program it began last year. CBA for its part believes it will instead taper the program back, still injecting billions of dollars each week into the market.
ANZ’s economics team agreed, expecting “flexible” quantitative easing (QE) going forward, while interest rates will remain low for at least a few more years yet.
All in all, there’s plenty of reasons to suspect the good times will continue to roll.