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The latest Financial Aggregates data from the Reserve Bank of Australia (RBA) has revealed that total credit growth slipped to 2.3 per cent in the 12 months to November 2019 – the lowest rate of growth since 2010.
The decline was partly driven by a continued reduction in housing credit growth, which slowed to 2.9 per cent over the same period, down from 4.9 per cent in the previous corresponding period.
The slump in housing credit growth over the year to November 2019 marks the slowest rate of growth on record.
The record weakness in overall housing credit growth was primarily spurred by a 0.3 per cent decline in annual investor credit growth, offset by a 4.7 per cent increase in owner-occupied credit growth.
However, according to chief economist at AMP Capital Shane Oliver, the credit data reflects the total stock of debt, noting that the recent rise in new housing finance commitment has been offset by the “rapid paydown of existing mortgages by cautious households”.
“[Slowing] growth in housing credit is not inconsistent with the rebound in the housing market,” Mr Oliver said.
The AMP economist said the trend indicates that consumers have opted to use recent cuts to the cash rate and tax deductions from the federal government to pay down their debt.
“This is often the case initially after such stimulus measures as it takes a while for consumers to get more confident,” he said.
The RBA cut the cash rate on three separate occasions in 2019, with reductions in June, July and October taking the official cash rate to 0.75 per cent.
Economists, including Mr Oliver, are expecting at least one additional cut to the cash rate in February.
Mr Oliver concluded by noting that consumer confidence would need to improve in the near term in order to hit GDP growth targets set by the federal government and the RBA.
In December, Treasury revised down its forecast for GDP growth in the 2019-20 financial year, from 2.75 per cent to 2.25 per cent.
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