Aussies Cannibalize Savings to Keep Economy Going After Boom

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Australians saved the least since the global financial crisis last quarter, helping the economy grow faster than expected even as business investment waned.

The nation’s savings ratio dropped to 8.3 percent, the lowest since 2008, data showed Wednesday. Household spending climbed 0.5 percent, contributing a third of the economy’s 0.9 percent quarterly growth, even as wages fell.

“Spending was only supported by a significant fall in the savings rate,” said Andrew Hanlan, a senior economist at Westpac Banking Corp. in Sydney. “This fall can only be interpreted as an involuntary adjustment rather than some positive sign that households are feeling more confident about their finances.”

Australians have been building financial buffers over the past decade even as a mining investment bonanza helped the country avert recession during the global downturn. The central bank has sought to release some of the cash via record-low interest rates to bring forward consumption and support the economy during the unwinding of resource spending.

Household balance sheets are under strain from weak wages growth driven by falling national income as commodity prices drop and unemployment rises. The government is also trying to cap spending to rein in its budget deficit, leaving consumers to draw on savings or take on debt.

Tepid Growth

Households continue to “dip into savings to spend since income growth remains tepid and returns on savings remain low,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore.

The savings ratio measures the proportion of income that households don’t spend. Australians carry a record debt of 153.8 percent of income.

Commonwealth Bank of Australia said after the gross domestic product data that while there are signs “of a gradual transition” to growth in industries outside resources, it needs to be stronger. That’s because 70 percent of the decline in mining investment is still to make its way through the economy.

The government, meanwhile, plans to improve its bottom line by drawing on its savings. It will include the earnings of the country’s sovereign wealth fund on its books from the fiscal year starting July 1, 2020, when the budget is projected to have returned to surplus.

The inclusion “accounts for the large jump in the forecast surplus between 2019-20 and 2020-21, and for more than half the surplus that’s projected by 2024-25,” said Saul Eslake, chief Australia economist at Bank of America Merrill Lynch.

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