Australia’s COVID-19 economic recovery is gaining momentum, with consumer confidence at a seven-year high, deferred loan repayments restarting and economists predicting a housing market resurgence.
As the nation recorded its fourth consecutive day without a COVID-19 community transmission, the sharemarket closed at an eight-month high as the federal government revealed a vaccine was likely to be available by March, paving the way for the gradual unwinding of social distancing restrictions.
The major banks believe the housing market remains strong. CBA chief executive Matt Comyn said on Wednesday the drop in house prices from peak to trough could be as little as 3 per cent, with the latest RBA rate cut adding momentum and increasing interest in the market.
Mr Comyn, who heads Australia’s biggest bank, said he was “encouraged by the number of customers who were able to return to making repayments”. He said 52,000 loans remained in deferral at the end of last month, down 75 per cent from the total as at June 30.
“There’s definitely been more resilience and strength in the housing market, and I suspect that the latest rate cut will increase that momentum,” Mr Comyn said.
Westpac’s latest consumer sentiment survey showed confidence jumped in early November to reach the highest level since 2013, while the bank’s “time to buy a dwelling” index hit similar highs.
Westpac chief economist Bill Evans said that “without doubt this survey is signalling a strong resurgence in the housing market”. The bank’s monthly consumer confidence gauge pushed 2.5 per cent higher to 107.7 points in November — the highest since 2013. That was after surging 11.9 per cent to 105 points in October following the Morrison government’s big-spending budget.
Mr Evans credited Victoria’s success in suppressing the virus and the easing of restrictions with driving the sharp lift in optimism.
Westpac’s consumer survey buoyed hopes that retailers would enjoy something like a normal Christmas. The upbeat consumer survey came a day after NAB’s business survey showed corporate sentiment was at its highest level since mid-last year.
Households have built up a $100bn savings buffer though the COVID-19 crisis, according to RBA data, representing a massive cash pool that economists and policymakers hope will be spent over the next six months as government income support is withdrawn between now and March.
The Reserve Bank last week upgraded its near-term outlook for the economy, lowering the expected peak in the unemployment rate to 8 per cent by the end of the year, in line with Treasury forecasts, and down from a previous estimate of 10 per cent
Australian Retailers Association chief executive Paul Zahra said there was a mood of “cautious optimism” among retailers, but also “there’s a lot to be positive about”. “It’s been such a tough year, and what we are seeing and hearing from our members is that people are treating themselves and their family.”
Mr Zahra said he believed there was a lot of “pent-up demand” and forced savings following months of disruptions and restrictions. “I do think most retailers are planning for a satisfying Christmas — the stars seem to be aligning quite well,” he said.
Josh Frydenberg said the economic recovery was “now underway” as market economists suggested the economy was on track to beat optimistic Treasury forecasts in the October 6 budget.
Deloitte Access Economics partner Chris Richardson said confidence was “the cheapest stimulus there is”.
Mr Richardson said people could “see the light at the end of a tunnel” and that “if things go right there’s a potential for a beautiful recovery”. “In many ways a bunch of things are going right,” he said. “We know it’s a very risky environment, but if we stay on this path, it’s a good one.”
ANZ’s head of Australian economics, David Plank, said the country’s recovery was on track and building momentum. “The good things we thought were happening are happening, and faster than we thought,” he said. “We know there is a positive wealth effect from house prices, as well as stronger building activity, and that has a strong multiplier in terms of economic activity.”
On Monday ANZ revealed the number of borrowers with deferred repayments had dropped from a peak of 86,000 in August to 33,000 by early November.
While Australia’s recovery from its worst recession in almost 100 years looked likely to gather pace this year, there were questions on whether it could be sustained in 2021, despite hopes for a vaccine, as the economy moved off emergency relief from April.
“Next year we will see fiscal stimulus will be cut back quite aggressively,” Mr Plank said.
He added that the legislated tax cuts did not replace the “enormous” income support provided through the crisis.
Business Council chief executive Jennifer Westacott said the buoyant mood among consumers was great news, adding that confidence was “absolutely essential to Australia’s recovery”.
But with 1.4 million people on unemployment benefits, and more than 3 million reliant on the temporary JobKeeper wage subsidy scheme, ACTU secretary Sally McManus warned that “while some people might be feeling confident, there are huge areas of the workforce which are still facing a very uncertain future, especially with the government refusing to set a rate for JobSeeker and JobKeeper beyond March”.