The corona virus has had one dramatic effect, with people staying home savings rates are the highest in years.
By now you know Australia is in recession.
From the article:
Usually in a recession, there’s two types of people. Those who lose their
jobs dip into their savings to cover cost of living. Meanwhile people who keep their jobs save more than usual. They do that because they are worried about the future – they could be next to lose their jobs, after all. Usually this second group is bigger, and so overall national saving goes up.
That’s bad news that makes recessions worse. The more we save the weaker the economy gets. They call this “the paradox of thrift”
If one person is thrifty and saves their money that’s great. But if we all do it, spending dries up, the economy gets weaker and we all suffer.
This time, on top of the usual paradox of thrift, we had lockdown and shutdown. That caused savings behaviour to go absolutely loopy. Some Australians are stuffing away thousands of dollars in every pay cycle. What else are you going to do with your income?
As the next graph shows, we saved an estimated 20 per cent of our income in the months of April, May and June this year. That is HUGE.
How did it get there? The answer is partly saved income, and also partly Centrelink. Centrelink payments are a big part of household income but they don’t count towards GDP. The P in GDP is for product, as in production. GDP counts income you get for work but not income transfers. And there has been a record amount of income transfers.
Billions has been spent on the JobSeeker supplement. Those transfers have done two things: First, helped stop spending from getting even worse. Second, some of that money has been saved, and will be spent in future.