Australia Will Avoid Recession Thanks to Gen X, BlackRock Says
Despite rising interest rates, the total stock of household savings now stands close to A$260 billion
Despite rising interest rates, the total stock of household savings now stands close to A$260 billion
SYDNEY—Australia’s commodity-rich economy is on track for a soft landing, despite an alarming slowdown over the last year, supported by a household savings and an injection of pension funds as members of Generation X join baby boomers in retirement, according to the world’s biggest asset manager BlackRock .
Craig Vardy, a portfolio manager for BlackRock based in Sydney, told reporters at a briefing that with swarms now tapping their retirement funds, the pool of savings in the economy is rising and is acting to ward off a recession.
Payouts of retirement savings rose by around 7% through 2023 to a record $149 billion Australian dollars (US$98 billion), which is equivalent to about 10.0% of household income, Vardy said. Despite rising interest rates, the total stock of household savings now stands close to A$260 billion.
“There still a lot of savings…which will be a tailwind for the economy, ” Vardy said.
His comments come after data this week showed the economy grew just 0.2% over the fourth quarter of 2023, and by 1.5% compared with the same period a year earlier, the weakest pace in 30 years.
The economic slowdown has developed as the Reserve Bank of Australia has delivered 13 interest rate increases, while surging inflation has fueled the fastest rise in the cost of living since the 1980s.
“Even though we’ve had a really sharp rise in interest rates, household spending has not collapsed,” Vardy said. And while unemployment is rising, it remains low by historic stands.
“That doesn’t feel recessionary to me. A soft landing is the base case,” Vardy said.
The federal government will also deliver income tax cuts midyear which will further bolster funds sitting in bank accounts, he added.
Given that the economy looks unlikely to fall into a ditch, there is no reason to expect that the RBA will move quickly to cut interest rates, he added.
“If you’re a central bank now, the last thing you want to be doing is cutting interest rates now. You will want a higher degree of confidence that inflation is falling,” Vardy said.
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Continued stagflation and cost of living pressures are causing couples to think twice about starting a family, new data has revealed, with long term impacts expected
Australia is in the midst of a ‘baby recession’ with preliminary estimates showing the number of births in 2023 fell by more than four percent to the lowest level since 2006, according to KPMG. The consultancy firm says this reflects the impact of cost-of-living pressures on the feasibility of younger Australians starting a family.
KPMG estimates that 289,100 babies were born in 2023. This compares to 300,684 babies in 2022 and 309,996 in 2021, according to the Australian Bureau of Statistics (ABS). KPMG urban economist Terry Rawnsley said weak economic growth often leads to a reduced number of births. In 2023, ABS data shows gross domestic product (GDP) fell to 1.5 percent. Despite the population growing by 2.5 percent in 2023, GDP on a per capita basis went into negative territory, down one percent over the 12 months.
“Birth rates provide insight into long-term population growth as well as the current confidence of Australian families,” said Mr Rawnsley. “We haven’t seen such a sharp drop in births in Australia since the period of economic stagflation in the 1970s, which coincided with the initial widespread adoption of the contraceptive pill.”
Mr Rawnsley said many Australian couples delayed starting a family while the pandemic played out in 2020. The number of births fell from 305,832 in 2019 to 294,369 in 2020. Then in 2021, strong employment and vast amounts of stimulus money, along with high household savings due to lockdowns, gave couples better financial means to have a baby. This led to a rebound in births.
However, the re-opening of the global economy in 2022 led to soaring inflation. By the start of 2023, the Australian consumer price index (CPI) had risen to its highest level since 1990 at 7.8 percent per annum. By that stage, the Reserve Bank had already commenced an aggressive rate-hiking strategy to fight inflation and had raised the cash rate every month between May and December 2022.
Five more rate hikes during 2023 put further pressure on couples with mortgages and put the brakes on family formation. “This combination of the pandemic and rapid economic changes explains the spike and subsequent sharp decline in birth rates we have observed over the past four years,” Mr Rawnsley said.
The impact of high costs of living on couples’ decision to have a baby is highlighted in births data for the capital cities. KPMG estimates there were 60,860 births in Sydney in 2023, down 8.6 percent from 2019. There were 56,270 births in Melbourne, down 7.3 percent. In Perth, there were 25,020 births, down 6 percent, while in Brisbane there were 30,250 births, down 4.3 percent. Canberra was the only capital city where there was no fall in the number of births in 2023 compared to 2019.
“CPI growth in Canberra has been slightly subdued compared to that in other major cities, and the economic outlook has remained strong,” Mr Rawnsley said. “This means families have not been hurting as much as those in other capital cities, and in turn, we’ve seen a stabilisation of births in the ACT.”
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