The Growing False Sense Of Security — As The Aussie Economy Becomes Addicted to Government Aid
In recent weeks there have been multiple data releases indicating that consumer confidence is improving, along with consumer spending.
Australian exceptionalism is seemingly once again taking hold, as hopes rise that somehow the ‘Lucky Country’ can find a way to dodge yet another economic crisis largely unscathed.
But as this article and the graphs contained within will illustrate, this optimism is built on previously unparalleled levels of government intervention.
How Much Has Consumer Spending Actually Risen?
As shown by the graph below, consumer spending among households not receiving stimulus payments such as JobKeeper, welfare bonus payments or the JobSeeker bonus, has not bounced back to anywhere near pre-crisis levels despite the gradual reopening of the economy and workplaces.
However, consumer spending for the recipients of these aforementioned government payments has risen by 40% compared with pre-Covid 19 levels.
The Consumer Confidence Divergence
In recent releases of ANZ’s weekly consumer confidence survey, a strange but not entirely unexpected phenomenon has begun to take shape.
Despite the reopening of the economy and the ongoing relaxation of coronavirus containment measures, consumers remain extremely concerned about the future of the economy on a 12 month time horizon. Confidence levels for this metric remain stuck around their global financial crisis lows.
However, when consumers were asked about the prospects for their personal financial future over the same 12 month time horizon, they were far more optimistic. Confidence levels on this metric have already returned to 2019 levels and the current reading is just a few points off the indices long run average.
Effectively Australian’s seemingly believe that the economy is simultaneously in big trouble and that our nation may face significant hardship, but at the same time they believe their household will be fine personally.
After almost 30 years without a recession and promises of a ‘Bridge to the other side’ of the crisis from the Morrison government, this is not a surprising outcome.
Like so many other crisis’ that came before, many Australian’s believe that they will be fine personally, because that’s what has happened for many, every other time the world or our region experienced a significant economic crisis in recent decades.
How Much Is The Government Actually Spending?
In the past month alone the Morrison government’s policies and stimulus measures have injected an estimated additional ~$21.6 billion (1.08% of annual GDP) into the economy, in the form of the JobSeeker bonus, JobKeeper and the approval of the withdrawal of superannuation funds.
To put that into perspective the entire Rudd government’s $950 cash handout policy during the global financial crisis came in at a cost of $12.7 billion.
In the past 30 days approximately $1 in every $8 of GDP came from the Morrison government’s aforementioned policies, not including economic multipliers.
In terms of total government welfare spending and stimulus policies combined over the same time, $1 every ~$4.50 of all economic activity was driven by these factors (compared with $1 in $11.1 under normal circumstances).
Conclusions
Its not all-together surprising that given the enormous levels of government stimulus that consumer confidence is rising and Australian’s with extra money in their pockets due to JobKeeper, the JobSeeker bonus and other welfare bonus payments are spending significantly more.
As coronavirus containment measures continue to be lifted, the government’s support measures have created a false sense of security for the public. In fact the confidence in the economy bouncing back strongly is so high in some circles, that multiple Coalition MP’s have insisted that JobKeeper and other stimulus measures end early or at the very least conclude in September.
For an economy where $1 in every $4.50 in GDP for the month was driven by super withdrawals, stimulus measures or welfare payments, this type of largely unfounded confidence is a dangerous development.
The temptation for the Morrison government to cut off stimulus measures on time and perhaps even claw back some of the funds already committed to JobKeeper and small/medium business loans continues to grow.
These stimulus measures have effectively left Australia in the eye of the economic storm, we are insulated against the worst of what is going on in the rest of the world.
But ultimately, these measures will eventually have to end and we may find out that building our sandcastles on a beach with a rising tide was perhaps not the best idea after all.
