Has Australia already passed the peak of its COVID recession?

Key points:

  • CBA says card spending last week was down 2 per cent compared to a year ago, a large improvement from mid-April
  • Spending on household furniture and equipment was up by 53 per cent
  • NAB sees economic recovery taking until 2022, as business conditions continue to deteriorate

The slump in consumer spending showed further signs of reversing last week, with Commonwealth Bank economists finding the overall level of spending is now much “less bad” than it was just a few weeks ago.

An analysis of CBA’s debit and credit card data shows total spending over the week to May 8 was down just 2 per cent compared to a year ago, a major improvement from mid-April when it was down around 20 per cent, and reflecting “pent up demand” in the lead up to Mother’s Day.

However, the bank’s senior economist Belinda Allen warned there are several factors concealing the magnitude of the fall, including the fact that spending was noticeably weak this time last year as well.

“There was considerable uncertainty in the lead up to the Federal Election held on 18 May, house prices had been falling for close to 18 months and the unemployment rate was rising,” she said.

A preference for contactless payment and spending online rather than cash and instore spending, to help control the transmission of the virus, could also be overestimating the improved momentum.

The Bureau of Statistics said retail turnover surged 8.5 per cent in March, as people hoarded toilet paper and pantry staples as concerns about coronavirus escalated, however economists have been warning of a steep fall in April, as stockpiling subsided.

CBA’s analysis found momentum last week had improved from mid-April, when spending was down almost 20 per cent compared to last year.

Food and alcohol card spending turned higher than a year ago, while spending on household furnishings and equipment was up by 53 per cent as people used more time at home as an opportunity for home improvement.

Card spending on transport, clothing and education were all around 30 per cent weaker than last year, but had still improved since the low point in mid-April.

There was also a variance between the states, with the smaller states and territories recording higher spending than a year ago, while Queensland also turned positive as some restrictions were eased.

However, spending in the ACT and Victoria was down 7 per cent, while it was 4 per cent lower than last year in New South Wales.

“We do expect to see more spending shifts as some restrictions are being lifted in each state. There are differences as to what is allowed in each state and we would expect to see this represented in this data,” Ms Allen said.

Any further easing in restrictions coupled with more positive news on the transmission of COVID-19 could be expected to further support household expenditure in the near term.

Retail, hospitality, travel recovery to take two years: KPMG

However, while the CBA data offer a glimmer of hope that the worst decline in consumer spending may be over, new research from KPMG suggests many sectors will take years to recover.

The recovery in the sectors that have been hardest hit by the coronavirus restrictions and shutdowns, including retail, arts, hospitality and travel, will not be complete until the March quarter of 2022, according to research from KPMG.

The accounting and consultancy firm is forecasting the Australian economy to take until the September quarter of 2021 to return to the level of activity seen at the end of 2019, prior to the coronavirus pandemic.

KPMG expects retail trade, air travel and accommodation and food services to continue to underperform, at around 75 per cent of their pre-pandemic turnover in the March quarter of next year

NAB chief economist Alan Oster agreed a recovery is likely to take two years to be complete.

“We see a recovery in growth late this year, but even though it could be a solid bounce, the level of output is not expected to be recovered to pre-COVID levels until early 2022,” he said.

Mr Oster’s assessment came with the release of NAB’s monthly business survey, which showed business conditions continued to deteriorate in April, falling to below the levels seen during the global financial crisis.

The decline in conditions was driven by falls in employment, trading conditions and profitability.

However, confidence improved, rising 19 points last month, although remaining weak at an overall reading of -46 points.

“Overall conditions are now deeply negative in all industries outside of mining,” Mr Oster said.

“Although confidence improved slightly, forward orders weakened, pointing to a further decline in activity going forward.”

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