The economic slowdown has forced Australian consumers to amp up their savings, amid fears of a possible recession.
According to JP Morgan chief economist Stephen Walters, households are saving their money as opposed to spending it, in order to prepare themselves for the possibility of further job losses and recession.
“People anticipate that things are going to get grim and that they may even lose their jobs… the natural reaction to that is increase your savings.”
ABS data has shown that in the September 08 quarter, households increased their share of savings to 3.9 percent of their income, up from 0.2 percent nine months previous.
This puts serious pressure on the Rudd Government’s $42 billion stimulus package, aimed at boosting the economy by providing low and middle-income earners with a $900 cash bonus, intended to be spent.
Reserve Bank governor Glenn Stevens expects that over 50 percent of Australians will save their cash bonus, as opposed to spending it as the Government intends.
“Even if some of it is saved, it’s true that doesn’t give you a stimulus to spending today.”
However, he suggests the stimulus package will still benefit the economy in the long run.
“That is still helping them … where they are more in a position to expand spending, even though that may well be some time down the track.”
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