On Wednesday, June 3, 2020, Joshua Anthony Frydenberg confirmed that Australia would enter into a technical recession. The country’s Treasurer conceded this fact by pointing out in a slide, saying that the economic crisis would take place when the June quarter gross domestic product (GDP) data gets officially released. A recession, by definition, is a time of economic deterioration. The downswing in GDP in two consecutive quarters typically characterises this period.
The 2020 economic decline is the first that Australia has faced since the same event took place in 1991. This scenario translates to the fact that the nation has broken its record of nearly 30 years without undergoing an economic downturn. Also, the disastrous summer bushfire season and the repercussions of the coronavirus or COVID-19 pandemic are the catastrophes that Frydenberg remarked as the causes of the present recession. He referred to the latest national accounts from the Australian Bureau of Statistics (ABS) to confirm the economic effects of these conjoined calamities.
Australian Bureau of Statistics Data and Spike in Consumer Savings
Bruce Hockman confirmed the economic growth figures released by the Australian Bureau of Statistics (ABS) on the first week of June 2020. The ABS chief economist affirmed that, through the year, the growth of the Australian economy decelerated to 1.4 per cent. Hockman relayed that this number had been the most sluggish through-the-year economic expansion since September 2009. That time was when the country was in the middle of the Global Financial Crisis, he said. The head economist of the ABS also confirmed that the new economic growth rate exhibits the weakest performance of the Australian economy over the past year. Hockman cited that this figure captures merely the start of the anticipated economic impacts of the coronavirus crisis as well. In the March quarter, the economic growth of Australia contracted by 0.3 per cent, too. The ABS linked this falling GDP figure to the repercussions of the COVID-19 pandemic and the bushfires.
During the second quarter of 2020, the ABS reported that disposable incomes surged. A 6.2-per cent rise in social assistance benefits drove this trend because the number of recipients spiked. In March, claims for social assistance benefits increased as people lost their employment. Plus, the government rolled out new support packages. Consumers increased their expenditures on products, some of who hoarded supplies as they expected a lockdown of all non-essential firms.
However, according to the ABS data, Australian consumers reportedly were able to increase their savings. This fact is despite the grim figures that demonstrate the current health of the national economy. Household consumption dropped by 1.1 per cent. This first nosedive takes place since December 2008. In 34 years, it is the most massive quarterly slump as well. Also, in February and March, consumer spending on services decreased by 2.4 per cent with the introduction of travel prohibitions and social distancing restrictions. Plus, during the March quarter, consumer outlays on restaurants, transport services, cafes, and hotels fell off a cliff. The 2.9-per cent fall in the dwelling or housing investment took place as well. This figure is over 15 per cent recorded over the past year. Finally, the ABS affirmed that consumers had shied away from face-to-face consultations with their general practitioners. Also, they had deferred elective surgeries. These trends have triggered a 0.1 per cent plunge in social assistance and healthcare expenditures.
With the decline in consumption, household saving in Australia is reportedly at the highest rate now since September 2016. Also, the government unit’s data demonstrated that the household saving-to-income ratio surged by 5.5 per cent. This number presents an increment of two points from the December quarter.
4 Methods to Boost One’s Savings Accounts during the Economic Crisis
Joshua Anthony Frydenberg affirmed that the first recession in nearly three decades is unavoidable. This economic downturn concludes Australia’s extraordinary and continuous run of economic expansion. Frydenberg pointed out that, in the coming months, consumers would have to get ready for challenging moments. He said that it is because the June quarter results would be worse than the effect that consumers encountered last March. The latest news about the recession may leave consumers feeling anxious and unaware of the proper courses of action to perform. But the ABS confirmed that Australian savers had tended to save more during the coronavirus crisis, and they can continue this practice. The following four techniques can assist consumers in future-proofing their finances. Hence, there is no reason for them to panic at this point.
A) Store one’s emergency savings fund in a bank account with a high interest rate.
Growing an emergency savings fund is more significant than ever today. It is because the most considerable personal effect of a recession is the loss of employment and income. Personal finance experts recommend having approximately three months’ rent in a consumer’s savings account. This amount of money can aid during times of job loss. Also, the cash rate of the Reserve Bank of Australia is at a 0.25-per cent historic low. Hence, researching about the savings accounts with high interest rates to store one’s hard-earned money on is advantageous.
B) Settle one’s credit card debts and consider a low-fee, low-rate choice.
During the economic crisis, a consumer will be able to develop better financial habits by paying off his credit card dues on time if possible. This helpful measure aids in preventing the piling up of any existing credit card balances. Also, once a consumer has already settled his credit card debts, he may consider switching to a low-fee and low-rate credit card.
C) Consider getting another part-time or casual employment.
Recession involves workers facing the likelihood of losing their primary employment. But they can remain on top of their debts, bills, and other payables by seeking part-time or casual jobs. One example of a part-time occupation is freelance work in one’s selected sector. This solution can help consumers support themselves and their households. Plus, it can bolster and diversify their present income amid the economic downturn.
D) Budget one’s money wisely and stay frugal.
Although the country is now officially in recession, it is also an auspicious time for consumers to familiarise themselves with their spending habits. One of the techniques they can benefit from when budgeting is by categorising their spending into four groups. These classifications may include:
a. Wants, like night-outs with close friends;
b. Essentials, such as utilities and rent;
c. Savings; and
d. Needs, including groceries.
A consumer may assess at what percentage of his salary goes towards each of these groups. He can utilise effective programs that help in dividing up his budget, like those available on platforms like ASIC’s MoneySmart.
Boosting one’s savings account in the bank takes considerable amounts of time and money. However, the feasible courses of action above facilitate Australian savers to increase their savings in the bank amid the recession. By practising them today, consumers can come out unscathed during the economic downturn. Plus, these ways offer assistance on how to be in a better financial position in the years ahead when the national economy regains its sound health.