Aussie households choke on own vomit

Friday’s private sector credit data from the Reserve Bank of Australia (RBA) revealed that the stock of personal credit, which was already in terminal decline, collapsed by 10.5% in the year to June – the biggest plunge in recorded history:

As shown above, this decline in personal credit growth easily exceeds the troughs of the GFC (-7.8%) and the early 1990s recession (-6.0%).

It also follows a spate of data showing collapsing consumer demand, all of which largely pre-dates the COVID-19 lockdown.

For example, new car sales have collapsed to January 2010 levels after falling for 27 consecutive months:

Whereas household consumption, which accounts for around 55% of final demand, turned negative in Q1:

The fallout from the COVID-19 pandemic will obviously be brutal with real unemployment surging and household incomes falling:

Household savings rates had already spiked in Q1:

So, with Aussie households saddled with the world’s second highest debt loads (see next chart), and facing a withdrawal of income and mortgage support from October, they are likely to lift their savings further in a bid to repair their finances.

Thus, expect a prolonged period of household deleveraging, which will further drain household consumption and growth.

Leith van Onselen
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