The beat goes on: Spending our way to recovery
Do you have enough to Retire?Free Retirement Plan Health Check
In recent decades Australia has been a global poster child of economic prosperity. For almost 30 years we have enjoyed uninterrupted economic growth in what has been widely described as a ‘Goldilocks’ economy: not too hot and not too cold. An economy operating just right.
We have used our platform of rich natural resources and close proximity to the global economic engine room of China, to successfully make the shift to a services economy. We now have world-class banking, financial services and education sectors.
An economy interrupted
But COVID has ended this world-leading economic run. For the first time in 28 years we are in recession. After a small contraction in the March quarter, our economy slumped a further 7% in the June quarter. That is the biggest fall on record, and we have now lost $100 billion of economic activity this calendar year.
Things will get worse before they get better. The second lockdown in Victoria has seen to that. Victoria is our second largest state economy and usually contributes about a quarter of national economic activity. The second lockdown has created such a drag to our recovery that we can expect to see a further contraction in the September quarter.
No tension between lives and livelihoods
But this will pass. In time the economy will recover. And what’s clear is that containing the pandemic is the gateway to economic recovery.
Much of the debate on the pathway to recover has revolved around a perceived tension between managing the health crisis versus reopening the economy. People are asking how many deaths we can morally bear for a strong economy.
But this is a false dichotomy. In reality, there is no tension between lives and livelihoods.
Research shows that managing the health crisis is actually the pathway to achieving economic prosperity. A recent analysis by The Economist showed that it is the countries who have successfully contained the pandemic who have the best economic outlook.
Spending our way to recovery
That is why, as a community, we must all take sensible measures to contain the virus. Things like staying home when we are sick, social distancing when we’re out and wearing a mask when we are shopping or in public places.
But it’s also important that we keep spending to keep the wheels of commerce rolling. CoreData research shows that most Australian households have reduced their expenditure since COVID struck.
It’s sensible to tighten your belt when things go off track in retirement and you feel uncertain about the future. But share markets have largely rebounded and it is likely you can still afford the retirement you always planned.
So, if you’re putting off that planned car upgrade or kitchen renovation, think twice.
The beat goes on. Life shouldn’t stop just because there’s a pandemic. If we take sensible health precautions, then there is no reason why we shouldn’t go on spending our nest eggs as we had always planned.
Because retirement is long, and if we continue to live boldly every day, it won’t be a matter of ‘if’ the economy recovers but ‘when’.
Michael Bowman and James McMaster are co-founders of When Financial Solutions. This article is general and does not consider your personal circumstances. If you would like advice specific to you please give us a call.