While Australians have amassed staggering levels of savings during the COVID-19 pandemic, economists say this cash pile will fuel a post-lockdown spending spree.
Household savings peaked at more than 20% at the height of the pandemic crisis last year, but have since shifted back to a rate below 10% as the gradual reopening of locked down Victoria and NSW sparked renewed consumer spending.
Financial services firm UBS reported households have amassed an extra $120 billion in deposits since the pandemic first struck, amounting to an average of $6,000 per adult.
Additionally, the Commonwealth Bank has estimated households could be sitting on $230 billion in accumulated savings by the end of this year.
Now, economists suggest that while the massive savings surge by both households and businesses has been one of the defining changes caused by the pandemic, the next year will see a return to consumer spending, with hospitality and travel driving the economic rebound.
This follows data from the ABS released at the start of September showing household saving has already decreased – from 11.6% to 9.7% in the June quarter.
It found household spending increased 1.1% and added 0.6% to growth, driven by spending on services which rose 1.3% as COVID-19 restrictions continued to ease around Australia.
“Domestic demand drove the growth of 0.7% this quarter which saw continued growth across household spending, private investment, and public sector expenditure,” Michael Smedes, head of national accounts at the ABS, said.
“Lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in NSW only commencing later in the quarter.”
A survey from the Financial Planning Association released this week found the biggest single issue for Australian investors over the next 12 months is to ‘‘hit a savings goal’’, with those aged between 38 and 50 overwhelmingly signaling plans to save more post-lockdowns.
However, overseas economies that have reopened have overwhelmingly seen saving rates decline as people return to pre-pandemic consumption.
July’s US saving rate report saw the headline number fall from 10.1% to 9.4%.
Citi said in recent research it believed consumers would drive the economic recovery in 2022, helped by the build-up in household savings and fiscal stimulus.
Commonwealth Bank economist Gareth Aird told the Sydney Morning Herald households that used the pandemic to repay debt or build up savings would be more likely to spend a higher share of their future income.
Aird suggested spending 15% of these accumulated savings would inject more than $35 billion into household budgets in 2022.
The post Australia's $230 billion in household savings will fuel a post-lockdown spending spree, economists say appeared first on Business Insider Australia.