A prominent economist believes Australia’s relative success in protecting lives during the pandemic is why the nation’s first recession since the early 1990s is not as deep as other economies.
“That’s not rocket science,” Deloitte Access Economics partner Chris Richardson told the National Press Club in Canberra on Sept. 9.
“If people are scared, if families are scared, if businesses are scared, they’re not spending as much and the damage to economies is deeper.”
It could be why Australians suddenly appear to have a spring back in their step after suffering the doom and gloom of the pandemic.
New figures show consumer confidence has soared despite confirmation of a recession last week.
At the same time, people were taking on a home loan at a record pace, albeit prior to Victoria going into a harsh lockdown.
Australian Bureau of Statistics figures show the value of new loans for owner-occupied housing jumped 10.7 percent in July, the largest month-on-month in history.
First-time home buyer loans also surged 14.4 percent.
The bureau put this strong demand for credit down to the easing of COVID-19 social distancing restrictions in most states and territories.
But AMP senior economist Diana Mousina expects housing finance growth will likely slow over the next few months due to declining housing activity in Victoria.
“While owner-occupied housing is back to its pre-COVID levels, investor lending is still well below its levels earlier this year, which is also in line with the big fall in rents and higher vacancy rates which dent investor housing returns,” she said.
Meanwhile, the monthly Westpac-Melbourne Institute consumer sentiment index roared back by 18 percent in September after dropping 9.5 percent in August.
This recovery came despite confirmation last week the nation is in recession for the first time since 1992.
“Clearly this was ‘old news’ with respondents more focused on the future,” Westpac chief economist Bill Evans said.
He said the confidence fall in August was in reaction to the deteriorating virus situation in Victoria and the introduction to harsh lockdown measures in the state.
Adding to concern was the slump in NSW.
“We suspected last month’s 9.5 percent collapse in the index was an overreaction, but this month’s 18 percent rebound is a pleasant surprise nonetheless,” Evans said.
However, the September survey was completed before last weekend’s announcement by Premier Daniel Andrews of a very gradual reopening of the Victorian economy, possibly extending to November.
Consumer confidence is a guide to future household spending.
However, Evans warned progress in managing the virus and the opening up of economies still remained key to the outlook.
Every quarter, respondents are surveyed on what news they recall most and their assessment of it.
News on “economic conditions” had a recall of 42 percent, the highest proportion in almost nine years.
“News on this front was still assessed as overwhelmingly unfavourable,” Evans said.
However, views on “budget and taxation”, “interest rates” and, most notably, “politics” received favourable assessments.
Evans said the latter should be welcome news for Australia’s federal and state politicians, with an extraordinary 70 percent of consumers assessing political news as favourable.
“A result unlike any seen in the 45-year history of the survey and further evidence of what is proving to be a very strange recession,” Evans said.