Australia just received another warning on household spending

  • Credit to Australia’s private sector grew by just 0.2% in December, the smallest increase in seven months.
  • Housing credit remained subdued, particularly to investors, seeing the annual growth pace slow to five-year lows.
  • Credit for personal use tanked by 0.4%. Over the year, it declined by 2%, the largest drop since the GFC.

Credit extended to Australia’s private sector slowed in December, increasing at the slowest pace in seven months.

The slowdown was driven by sluggish growth in housing credit, a slowdown in business and a large decline in credit for personal use.

According to the Reserve Bank of Australia (RBA), credit grew by just 0.2% after seasonal adjustments, leaving the increase on a year earlier at 4.3%, the smallest since February 2014.

Credit to buy housing grew by 0.3%, unchanged from the pace seen in the prior four months. From a year earlier, it increased by 4.7%, the lowest since July 2013.

Housing credit had been expanding at an annual pace of 6.6% back in late 2017.

Over the year, credit to owner-occupiers expanded by 6.5%, nearly six-times faster than the increase in investor housing credit over the same period.

The year-ended growth rate in owner-occupier credit was the smallest since November 2015. For investors, it was the weakest on record to two decimal places.

In December, credit for owner-occupier and investor housing grew by 0.4% and 0.1% respectively.


The moderation in housing credit seen over the past year reflects the impact of tighter lending standards and, partially as a result, falling home prices, helping to curb demand for finance.

“Broadly speaking, three themes are driving the slowdown in housing credit growth,” said Gareth Aird, Senior Economist at the Commonwealth Bank.

“First, the flow of new lending is falling because the demand for credit has waned — a natural response to buyer expectations that dwelling prices will continue to adjust downwards in the near term.

“Second, there is a significant quantity of loans that are rolling over from interest only to principal and interest. As the rollover occurs, borrowers who were previously paying only interest on their loan switch to paying off the principal which ultimately weighs on the stock of debt — that is having a more material impact on the stock of credit to investors.

“Third, the RBA notes that there has been a decrease in maximum loan sizes offered by banks to new borrowers in response to the tightening of the serviceability requirements.”

Credit growth effectively measures changes in the outstanding amount of debt issued to the private sector.

Along with continued sluggish growth in housing credit, business credit also slowed, increasing by 0.3%, decelerating further having expanded by 0.8% in August. Despite the slowdown in subsequent months, the year-ended increase accelerated to 4.8%, the fastest in two years.

Reflecting continued caution from households, outstanding credit for personal use declined by 0.4% from November, the steepest drop since September 2012.

The slump fits with other anecdotal evidence that suggests credit card spending was very weak either side of Christmas.

From a year earlier, personal credit slumped by 2%, the largest decline since October 2009, the tail-end of the global financial crisis.

The ABS will release Australia’s December retail sales report on Tuesday, February 5.