Australians continue to run down their COVID-era savings
Households continue to follow the US experience, drawing on the excess savings built up during the pandemic.
The latest data on cash flows show that Australian households continue to marginally dissave, which means that they are running down their financial assets and/or incurring more debt.(1)
Using the figures to estimate what has happened to the excess savings built up during COVID, they continue to decline, falling to 7% of annual GDP in Q2 (or 5% of GDP assuming households do not run down the higher offset/redraw balances built up early in the pandemic).
These calculations are sensitive to the underlying assumptions, but suggest that Australian households continue to hew to the American experience, where households have effectively exhausted their excess savings (Q2 US data are yet to be published).
In contrast, the decline in excess savings in the euro area has stalled, with cash flow data showing households saving at a faster rate recently.
This difference in trends could reflect the fact that household wealth remains depressed in Europe in real terms, whereas wealth in the US and Australia has recovered strongly, buoyed by house prices reaching record highs.
Note:
(1) Household cash flow - aka "net lending" - is defined as household income less consumer spending less investment in physical assets (i.e., building new homes, renovating existing homes, and small business investment).
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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