Businesses Hoarding Deposits in Response to Lockdown
(21 July 2021 – Australia) Businesses are saving cash at ‘unprecedented levels’ as apprehension over the vaccine rollout, frequency and length of COVID-19 lockdowns build across Australia.
ANZ’s small business deposits increased by 25 percent year-on-year in Q1 2021 to A$54.6 billion. As more than 11 million Australians are yet again locked down to limit the spread of the Delta variant in Sydney and Melbourne.
The Bank believes increased savings would have a “slightly negative” impact on the national economy. Economists are divided on whether Australia will fall back into recession, with many projecting yet another sharp bounce back in Q4 2021 in order to avert two consecutive quarters of negative growth. The Big Four majors have already extended financial support to customers, particularly in the harder-hit lockdown areas such as greater western Sydney. The forecasts are contingent on lockdowns ending quickly however, and while Victoria and South Australia are looking promising, Sydney appears to be “locked down for longer”.
“To be sure, this is not a repeat of our call in March last year that Australia’s economy would collapse. There is less shock and awe this time. We were in genuinely uncharted territory then, including for financial markets, where the so-called plumbing broke down in spectacular fashion. The unprecedented level of policy support since has seen share markets nearly double off the lows. It has also underwritten a resurgence in the global housing market, with conditions overheating in many countries” stated Exante Data Head of Asia Pacific, Grant Wilson.
“This is drawing parallels to how the Great Depression scarred people for life. Over the last year, on average, small businesses and consumer customers have been socking away huge amounts of cash into bank deposits, bank deposits have surged over the last year” commented ANZ CEO Shayne Elliott.
“What’s interesting is a big chunk of that has been from small business, partly out of fear and just being prepared for the future – they’ve been saving a lot of money. It’s a cliche but it’s a bit like our grandparents and great grandparents who grew up in the Depression – that sort of scarred them for life. There will be a lot of small businesses who will be the same. They will always be a bit cautious and always want to have a bit more money in the bank, and be more careful about the way they run the business. In the long run, it may well have a slight negative impact on the overall economy” said Mr Elliott.
“Small businesses are saving at an unprecedented rate and that’s put them in a stronger position than during last year’s lockdowns, particularly Melbourne’s 140-day stoppage. People start to eat into those savings to survive through this period and so mentally people are in a better position in the sense of being prepared. They would have been building their savings buffers in case something like this happens. So I’m a little bit more optimistic. What we’ve seen now time and time again both here in Australia and globally is once these lockdowns finish the economy bounces back really fast. So if you look through it all, the impact on the economy is not quite as bad as people fear. It bounces back really quickly” Mr Elliott added.