Australians became slightly poorer in the March quarter, thanks to the stockmarket slump triggered by the COVID-19 pandemic and lockdowns, and that trend looks like continuing for a while as the impact of job losses, using up savings and superannuation balances and selling assets continues.
In fact, the fall in average household wealth was the largest in nine years, according to the Australian Bureau of Statistics’s financial National Accounts.
While government aid packages like JobKeeper and the increased size of the JobSeeker program will help, falling property prices will add to the downward pressure on household finances from sluggish economic activity over the next year or more.
The ABS says the financial National Accounts reveals average household wealth fell 2.3% or $9,982 to $428,585 per person in the three months to March, with much of the drop happening in the final six weeks of the quarter as falling share prices dragged down superannuation returns and balances.
The ABS said the fall was the largest since the September 2011 quarter.
The fall came from an 8.2% fall in superannuation balances and a 5.3% drop indirectly held equity holdings. The reversed the 3.3% rise in household wealth in the December 2019 quarter.
The ABS said that partly offsetting the drops were a real (inflation-adjusted) holding gain on land and dwellings of 1.9%.
“Overall, total household wealth decreased by 1.8 percent in the March quarter 2020. A 0.5 percent increase in the population was the reason average wealth fell more than total wealth,” the ABS said.
ABS Chief Economist Bruce Hockman said: “The March quarter 2020 financial account reflects the Australian financial markets early response to the economic uncertainty brought on by the COVID-19 pandemic.”
In response to the impact of the pandemic and locks downs, the ABS said cash became king for many companies and organisations.
“Private trading corporations, superannuation, non-financial and non-money market investment funds responded to the events of the March quarter 2020 by increasing liquidity in deposit balances,” the ABS said yesterday.
“Private trading corporations increased deposit balances by 8.5 percent, in anticipation that COVID-19 would negatively impact cash flows and their ability to cover expenses. Non-financial and non-money market investment funds boosted deposit balances to meet anticipated redemptions, largely from superannuation.
“Superannuation deposits also increased in preparation for members’ request for superannuation entitlements early.
Deposit assets of banks increased by 60.5%, as the Reserve Bank of Australia injected extra liquidity into the financial system.
“While Australian banks typically rely on deposits to fund lending and debt issuances to manage liquidity, demand in the global debt markets plummeted in the second half of March quarter 2020 as institutional investors became more risk-averse in response to the economic uncertainty created by the COVID-19 pandemic,” the ABS said.
“This lack of activity reduced the ability of financial institutions to balance exposure to short term deposit liabilities with long term loan assets,” the Bureau added.
Details in the ABS report revealed some huge falls in asset values in shares in particular (and the rise in the property).
The ABS said that household net worth (wealth) fell $204.0 billion (-1.8%) in the March quarter due to a $333.6 billion drop in financial assets, driven by superannuation reserves which fell $268.2 billion and shares and other equity (down $57.6billion), “reflecting the impact of COVID-19 on the Australian and international financial markets from late February 2020.”
“These falls were partly offset by an increase in deposits ($17.2b), reflecting households’ preference for safe and liquid assets in times of economic uncertainty and the low levels of consumption on non-essential goods and services due to COVID-19 restriction measures.
“The fall in financial assets was partly offset by a $145.8b increase in land and dwellings. There were no significant impacts from COVID-19 containment measures, such as government restrictions on auctions and open house inspections on growth in land and dwellings, as these measures came into effect during the last week of the quarter.”
That’s obviously an impact that will show up in the data for the June quarter which ends next Tuesday.