Strange Days

  • 08 Feb 2021
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In the future, when some statistician looks back at the numbers during the Covid downturn, they will see an extra ordinary set of numbers.

A massive drop in spending and GDP, yet a rise in incomes and savings!

When we come out the other side two things will occur.

First, there will be more things to spend money on. Options will open up again. State borders will crack open, and people will go on holidays. A lot of pent-up weddings and 21st birthdays will be held. Bands will tour. Services, which makes up most of the spending in developed countries is still way down.

However, income support will stop. The JobSeeker supplement and JobKeeper are both scheduled to stop in late March. It is hard to overemphasise just how big these two programs have been. The government has spent billions and it will all stop in March.

Due to the wind down of the massive stimulus, where incomes actually rose during Covid, we could see household income drop.

One person’s spending is another person’s income. That is how the economy works. When spending goes up, income goes up and when income goes up spending goes up and the economy gets stronger.

However, given all the saving that went on during the Covid downturn, we could see stronger spending even if overall income declines.

We do not know how this will play out, but there is reason to have some confidence in aggregate. The more dramatic swings are likely to be what we spend money on. Have we seen permanent shifts or are we about to see a big swing back, when we once again have a full range of choices available to us?

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