May 25 Economic Update: Spending is back to pre-crisis levels, but will it last?
Credit Simple is part of the illion group of companies. illion has partnered with AlphaBeta to create a weekly economic update, and we think you’ll find it useful in these strange times.
New data released today shows that spending is returning to normal, at just 3% below pre-crisis levels.
While this evidence confirms mortgage deferrals and other hardship measures are supporting spending, it also suggests that we may be simply kicking the can down the road until September – when stimulus measures and bank mortgage holidays come to a grinding halt.
The Australian Banking Association has released new figures showing 429,000 mortgages had been deferred, totalling $153.5 billion. The evidence from illion & AlphaBeta shows these hardship provisions are supporting spending.
Comparing people who received mortgage deferrals with those who did not, there is very little difference between levels of discretionary spending. Many people on hardship payments have experienced income reductions. Without hardship provisions these people would have to cut their spending significantly in response.
Cliff face looms, come September
These trends show that come September, we will be staring down the cliff face. Mortgages will need to be repaid, those in hardship will further clamp down on discretionary spending, having a cataclysmic impact on the economy. It could be a double-whammy if the hardship provisions end at the same time as Government support.
The Government needs to hasten its thinking around how the stimulus measures end up being withdrawn. It’s critical that they don’t come to a grinding to a halt but are tapered off to ensure people have time to adjust.
Fiscal economic stimulus measures also need to be front of mind in terms of how the Government fills the hole of new investments. Big picture nation-building measures that will remain useful to future generations are the type of solutions that are required.
Data from a survey of more than 340 of illion’s Credit Simple members showed that almost all respondents who had received a stimulus payment had found it had helped them.
Almost a fifth of respondents (18%), however, were concerned they would not be able to meet future payment obligations such as utilities, rent and mortgage payments.
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