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Changing Tide – Spending vs Saving

Household quarterly net savings are well above the 10 year average. While the Household savings ratio peaked at 23.6% in June 2020, the ratio remains elevated at 19.8% in the 2021 September quarter. The rise in household saving was driven by increased household income coupled with a decline in spending.

Source: ABS, Australian National Accounts: National Income, Expenditure and Product.

Consumer spending is expected to rebound in 2022 helped by strong income and savings. By 2023, savings are forecast to decline closer to average. How households will spend their income and savings in 2022 will likely contrast to spending patterns over the past two years.

COVID-19 caused changes in household spending patterns. In March 2021, the ABS highlighted key shifts in how consumers were spending their money during COVID-19 compared to the past. For example, changes to annual household consumption expenditure shares included,

• expenditure on dining at home increased while spending on eating out decreased;
• spending on furnishings and household equipment increased while spending on transport decreased; and
• expenditure on goods such as audio-visual, camping and sporting equipment took the place of recreation and cultural services such as sporting competitions, cinemas and concerts.

Spending on discretionary goods and services will increase in 2022, along with growth also forecast for staples. The agricultural supply chain will benefit both from strong domestic demand for food in the supermarket as well as the reinvigoration of the hospitality sector.

Improved conditions in the hospitality sector will benefit Merricks Capital’s investments in agricultural processing facilities in Australia & New Zealand, which total $75m of senior secured credit.

Normalising domestic travel is set to boost investment in regional centres and create more Commercial Real Estate opportunities in these locations. We have seen this thematic at play with the settlement of $103m (NZD) investment in New Zealand where the loan will fund the development of a new town centre project on 130 hectares of land.

On a final note, Merricks Capital has no direct exposure to ProBuild on any of our projects. We are however, closely following the Voluntary Administration process and monitoring for any wider contagion risk.