Aussie households deleverage at astonishing rate

The latest private sector credit data from the Reserve Bank of Australia 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%).

Wednesday’s Lending Indicators data from the Australian Bureau of Statistics (ABS) supported these findings, revealing that annual personal finance commitments have collapsed:

The value of personal finance commitments was just $2.9 billion in June, down 19.7% year-on-year and down 46% from average levels.

Annual finance commitments fell to an all time low of $40.9 billion, down 38% from average levels.

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

For example, new car sales have collapsed to December 2009 levels after falling for 28 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 high real unemployment and employee 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 reduction of emergency income and mortgage support, they are likely to lift their savings further in a bid to repair their finances.

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

Leith van Onselen
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