Is Australia facing the ‘calm before the storm’?

VanEck/covid-19/RBA/ABS/ASX200/

7 October 2020
| By Laura Dew |
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Australia’s ability to escape relatively unscathed as a result of the COVID-19 pandemic could only be the ‘calm before the storm’ according to VanEck.  

The country was in a recession and the ASX 200 had fallen 11% since the start of the year but stimulus measures from the Reserve Bank of Australia and the Government meant it had fared better than other countries worldwide.  

According to the Australian Bureau of Statistics, household wealth rose by $165.1 billion in the June quarter and average household wealth increased by $5,881. This was driven by an increase in superannuation, direct equity holdings and deposits. 

Australian household income over 20 years 

However, these Government measures were set to taper with JobKeeper falling from a flat $1,500 each fortnight to a smaller one this week. It fell to $1,200 if a person worked 20 hours or more or $750 if they worked less than 20 hours, and would also fall for a second time in January 2021 to $1,000 and $650 respectively. 

In a report, VanEck said: “That’s when we’ll see if the money and the confidence in the household sector holds up. With JobKeeper decreasing and the freeze on corporate bankruptcies ending, we’ll also see how much damage businesses and their ability to maintain staffing have suffered. 

“The Federal Government’s idea for saving the economy also seem less than inspiring: upper income tax cuts and corporate capex incentives didn’t work last time so it’s hard to see why they will work any better now.” 

It also highlighted the fractious relationship  between China and Australia meant Australia would be unlikely to be able to rely on trade with China, its largest trading partner.  

“The economy was pretty much stagnant going into the COVID-19 shutdown. If households or capex won’t pull us up; and government stimulus is receding; what will boost the economy? With Australia at loggerheads with its biggest export destination (a third of all exports head to China), it doesn’t seem likely trade will bail out growth and incomes.” 

 

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