Managed funds: Max Riaz
Aussies who spend, rather than save, will drive economic growth
Australia has been a shining example on the world stage of how best to manage the spread of Covid-19 since the very beginning. Apart from the prolonged hard lockdown in Victoria in 2020, which was the result of mismanagement of that state’s quarantine procedures, nationally we really haven’t had to suffer major disruptions. The federal government’s fiscal response was also decisive in alleviating the imminent financial insolvency risks for both small businesses and individuals.
So why am I celebrating our success to date? Let me explain.
It is now becoming fairly obvious that Covid-19 is continuing to mutate into more virulent strands and these mutations are occurring faster and are more contagious. Moreover, current vaccine rollouts addressing the first strand of Covid-19 have only just been received by around 8% of the global population (other estimates are much lower) and they are simply not happening fast enough in much of the world.
Many people have only just received the first jab and so we cannot fully be sure of the vaccines’ effectiveness at the mass population level, and we are really only learning about their side-effects on the go. The more virulent strands don’t have a vaccine response and they are spreading, resulting in more sickness and death.
Fortunately for Australians, we now appear to have a robust template for Covid-19 in terms of quarantine procedures and the government’s economic response mechanisms. People and businesses are well set up for working from home, we have become used to face masks and social distancing and frankly are mentally prepared for intermittent lockdowns. So the risk of the virus spreading in Australia is much lower than what we are seeing outside our borders. There are a few other countries, such as New Zealand, that are on par with Australia’s management. Therefore, we see the Australian economy becoming more internally driven by private consumption and government investment. The net exports contribution to GDP growth will be more driven by our hard commodities and our terms of trade, rather than services such as education. Domestically, the Easter long weekend was very busy with accommodation booked out, high levels of foot traffic at local shopping centres and full attendances at public events such as the Sydney show. With property prices on the rise again, unemployment being driven down by the services sector and private savings well above average at 12%, versus 3% in 2019, we therefore see the wealth effect driving domestic consumption.
People moving between properties is another driver of consumption, specifically durable goods. Private consumption’s share of GDP is currently revisiting the multi-decade low of 53%, reeling from the first impact of the pandemic, but this can be expected to trend back up towards 60%, as in previous cycles – the last one being between 2012 and 2018 when private