The country bounced back from a quarterly loss comparable to The Great Depression, but Australians are still being cautious and saving nearly 20 per cent of their income.
The economy grew by 3.3 per cent in the September quarter, according to the Australian Bureau of Statistics (ABS), bouncing back from the 7 per cent drop that took place a quarter earlier, and offering some hope that the worst of the economic fallout from the COVID-19 pandemic has passed.
“Technically, Australia’s recession may be over but Australia’s economic recovery is not,” Treasurer Josh Frydenberg said.
“There is a lot of ground to make up and many Australian households and many Australian businesses are doing it tough.”
The recovery was bolstered by a 7.9 per cent lift in household consumption, Mr Frydenberg said, the largest lift on record.
Returning confidence to a stalled housing market also helped, he said. Dwelling investment was up by 0.6 per cent following eight consecutive quarterly falls, spurred on by a 5.1 per cent lift in construction and renovation work.
“The outlook for the housing market is positive,” Mr Frydenberg said, “supported by programs like HomeBuilder and the First Home Loan Deposit Scheme.”
Unemployment remains high, hovering at around 7 per cent as opposed to its typical 5 per cent, but the Reserve Bank of Australia (RBA), the nation’s central bank, has said the country has bested projections.
“We have now turned the corner and a recovery is underway,” Philip Lowe said, Governor of the RBA.
“... When we met three months ago, I was saying the unemployment rate in Australia could get to 10 per cent. Now I think somewhere in the sevens will be the peak.”
Still nervous about the pandemic, people are saving a lot more
In the March quarter, the household savings to income ratio was 7.6 per cent, according to the Australian Bureau of Statistics (ABS).
But people have been choosing to save more and spend less since the pandemic, causing the ratio to lift to 22.1 per cent for the June quarter, and then ease a little to 18.9 per cent for the September quarter.
“At times of uncertainty, people save more,” Mr Frydenberg said.
“Importantly, as the restrictions are being eased, as confidence is coming back, Australians will continue to spend and that money … is money there to be spent in the coming months.”
The current level savings to income ratio exceeds the 10.9 per cent registered during the Global Financial Crisis (GFC).
We’re saving more but earning less
Money in savings accounts have lifted by 9.98 per cent since COVID-19 arrived in March, data from the Australian Prudential Regulation Authority (APRA) reveals, swelling by nearly $100 billion to $1.098 trillion,
And it’s likely people would be earning less income from their savings,
More than 40 banks have slashed interest rates on their savings accounts since the RBA lowered the cash rate to 0.10 per cent, a RateCity analysis has found.
“It’s abundantly clear from these non-competitive rates, the banks just don’t need or want any more deposits,” Sally Tindall said, research director at RateCity. “They’re officially paying peanuts.”
The RBA cash rate is a guardpost banks use to set interest rates for mortgages and savings accounts. Its lowering to 0.10 per cent in November -- an extraordinary new low not seen in 30 years of record keeping -- has helped make mortgages more affordable and spurred home loan lending, but it has also given banks reason to slash the earning power of people’s savings.
“It’s frustrating to see savings rates tumble despite no move to variable home loan rates,” Ms Tindall said.
“People looking for a competitive rate on their savings account or their home loan have to get up and do something about it. Do nothing and you’ll be duped.”