Australia Stimulus Lands at Households, Ready to Carry Recovery

(Bloomberg) --

Australia's success in delivering timely economic stimulus in response to the virus-induced crisis won't stave off recession, but the cash has landed in bank accounts, ready to accelerate the recovery.

Household bank balances surged through the peak of the Covid-19 lockdown in April from the transfer of government payments and a pullback in spending. Data on jobless Australians seeking welfare benefits suggest recipients received benefits with little delay. Less than 3% of unemployment benefit claims were outstanding as of the third week of May.

The number of jobless Australians seeking welfare benefits looks to have peaked in mid-May, then edged down slightly in the week to May 22. That corresponds with the first stages of the reopening of the economy, indicating jobs are being regained.

Prime Minister Scott Morrison's government undertook three rounds of stimulus, each larger than the last, as the crisis unfolded. It's plowing A$259 billion ($178 billion), or 13.3% of gross domestic product, into the economy to help households and businesses.

Like South Korea, Australia has managed to deliver the cash to those hardest hit by the shutdown in timely fashion. That contrasts with the U.S., where almost one-third of unemployment benefits owed to the millions of Americans who lost their jobs haven't been paid. In Tokyo, hundreds had to line up for hours outside government offices to process their claims for 100,000 yen ($917) handouts.

Despite the Australian government's swift response, the economy is expected to experience a deep contraction in the current quarter, following on from the 0.3% drop in the first quarter. States and territories are reopening their economies and relaxing restrictions at different speeds. For the recovery to really take hold, however, households need the confidence to spend.

What Bloomberg's Economists Say
“The surge in deposits over March and April highlights the unique nature of the virus recession, and the flow of stimulus payments into the economy. Lockdowns have held back demand, resulting in a buildup of deposits on bank balance sheets, ready to flow into the economy as restrictions ease.
Weekly unemployment benefit payments data suggests the number of recipients may have peaked in mid May, with the reopening of the economy resulting in people gradually returning to work. While promising, the pool of unemployed workers remains vast - the economy's recovery still has a long way to run.”
James McIntyre, economist

For Gareth Aird, head of Australian economics at Commonwealth Bank of Australia, the surge in deposits doesn't override the fact that when stimulus ends in September, people will worry about their financial situation.

“There are a lot of people that are going to be unemployed, or are unemployed, and they're going to be really worried about their personal finances,” Aird said. “There's still going to be lots of damage.”