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.