Economy health check
Updated: Aug 28
In recent weeks the Reserve Bank governor labelled Australia’s economic downturn ‘not as severe as earlier thought’, a tradie-led recovery has been put on the table, and the grim announcement was made that Australia is in its first recession in 29 years. It has been an interesting period for our economy, as public and private policy experts put the wheels in motion for economic recovery, so here is what you missed and what it all means.
Image via Getty/paul mansfield photography
The economic downturn is…looking up?
An unprecedented policy response from the federal government and Reserve Bank is causing the economy to be in better shape than predicted only some months ago. According to the Organisation for Economic Co-operation and Development, Australia is leading the developed world out of the pandemic-induced recession. However, experts warn that withdrawing government support too quickly will derail the economy.
Let’s take a closer look at some of those supports
Fiscal stimulus measures JobKeeper and JobSeeker have been key pieces of economic relief provided by the Australian government and they are scheduled to end and reduce, respectively, in September. In saying that, a $60 billion JobKeeper miscalculation has renewed calls for that specific package to be expanded or extended.
However it’s the governments early access scheme that’s been making headlines recently, with new spending data showing Australians dipping into their superannuation nest-egg spent almost $3,000 more than normal in the two-weeks after receiving the money, and about two-thirds of the additional purchases were on items such as gambling, alcohol and furniture. Not exactly the type of ‘essential spending’ that the lump sum was intended for.
Poignantly, super is a long-term investment, meaning people who accessed theirs have made what economist Andrew Charlton describes as “one of the most expensive spending decisions of their lives”. The spending data can’t be taken as gospel and no doubt the scheme was a lifeline for some Australians who suddenly found themselves plunged into financial hardship, but it’s likely to be more tightly managed during the next round of withdrawals (“tranche two” in July).
Where do tradies come in?
Blockheads rejoice, the $688 million HomeBuilder program will offer grants of up to $25,000 to people who sign contracts to build or substantially renovate their home from Thursday until the end of the year. There are caveats, but the government anticipates the package will support 140,000 direct construction jobs and a million workers in the wider residential building sector. There has been backlash towards the scheme, with critics arguing the funds should be directed to public and emergency housing. This Daily Mail headline, “REVEALED: The shrewd ways to DOUBLE the new $25,000 HomeBuilder grant to renovate your home”, ought to go some way in illustrating that the scheme has had some teething issues. Nonetheless, one week in, there were reports of first-home buyers being lured into the market showing the scheme is doing was what intended and driving demand.
So, things are looking up?
If you plan on using cash from the HomeBuilder scheme to add a second storey to your home, absolutely. But for the rest of us, the recession is on. In a nutshell, the economy shrank 0.3% in the January to March quarter, and the April to June quarter will undoubtedly be more severe, which gives us two consecutive quarters of GDP decline. By the book, this means this is labelled a recession and the impact on jobs, spending, wages, debt and property is explained rather well in this article.
Wow, this is pretty gloomy
Fear not! Hot off the press is news that household savings are on the way up since the coronavirus pandemic. There is also talk of retail eyeing a recovery after the April slump, while our worst economic performance in nearly 30 years has not stopped the Aussie dollar recently hitting a five-month high. Better still, the recession is predicted to be a “quick one” meaning we are already seeing signs of improvement in consumer spending. Lastly, the benefit of hitting bottom is that you get to choose how you rebuild, which is why Australia’s major banks, insurers and superannuation funds are urging a radical rethink in how to steer the economy out of recession, calling for stimulus measures that solve rather than contribute to global warming. And a new United Nations report urged governments to pour money into renewable energy to pull us out of economic depression driven by the coronavirus, and ignite the transition away from fossil fuels. Here’s hoping that when the more immediate health and economic crisis, the climate crisis will take centre stage.