Government stimulus packages and lender deferrals may have softened the economic blow of the COVID-19 pandemic but with end dates in sight, UBS has warned of an impending fiscal cliff.
With JobKeeper and Jobseeker packages as well as debt deferrals scheduled to end, household cash flow spending would likely contract sharply in the fourth quarter 2020, UBS said.
However, household cash flow should increase in the second and third quarter, it said, thanks to better than expected wages data, the fiscal boost from JobKeeper, early withdrawals from superannuation and more deferred interest payments on debt.
Payrolls only dropped 0.2% over the two weeks to May 2, UBS said, a sharp improvement from -0.9% during the prior two weeks and the 6.3% slump during the three weeks before that.
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"The total cumulative fall over the seven weeks since March 14 is now 7.3%," it said.
However, this data may modestly overstate the change in employed people - as nearly one million people work in multiple jobs.
"Today's payrolls data implies job losses of only ~22k in the two weeks to May 2, for a ~100k decrease in the May LFS reference period; albeit for a cumulative drop of ~882k since March, which is much larger than the April LFS which showed employment fell 'only' 594k m/m (albeit still a record fall)," UBS said.
The JobKeeper package had also made surprising headways in keeping Australians in jobs, it said, helping the fall in employment to be offset by a fall in the participation rate.
"There are also >1.6mn people on JobSeeker (unemployment benefits), lifting by ~1mn since COVID-19 - meaning ~8mn are on government payments; vs total employment of ~13mn (of which another ~2mn are public sector employees)," UBS said.
The bank expects LFS employment to continue to decline over the coming months, with the unemployment rate lifting towards 101/2%.
"However, it now appears this may take longer until Q4 (instead of Q2) - post the (planned) expiry of JobKeeper and JobSeeker," UBS said.
Payrolls data also pointed to an improvement in wages, increasing 1.4% in the last two weeks as JobKeeper payments ramp up.
However, given the impact of shutdowns is still impending, UBS expects economic data to further weaken over the coming months - though, perhaps not as badly as the RBA is predicting.
"Given this uncertain outlook, we still see household savings surging to ~10% in coming quarters," UBS said.
"Hence, Q2 real consumption slumps ~9% q/q (amid mobility restrictions), but we remain far less negative than the Australian Treasury & RBA expecting ~-15% q/q.
"Indeed, if wages continue to surprise to the upside ahead then consumption could too."
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