Daily Commentary BY THE CURVE TEAM –

Credit Going Backwards

3rd of August, 2020

A worrying symptom of the pandemic continued in the data last week with private sector credit falling again June.

Data from the RBA released Friday showed that for the first time since the GFC total credit outstanding in the economy fell for back to back months. In what is a clear side-effect of the pandemic induced recession, consumers where possible seem to have opted to pay down debt lines and add to their store of savings. Similarly, business credit which fell 0.8% for the month, has been soft for several months now after the one month spike in March when businesses drew down debt lines as a precaution against the then impending lockdowns.

Whilst consumers and businesses providing buffers to their balance sheets in the face of lockdowns isn’t all that surprising, the main concern with the data is that over June much of the Covid-19 containment measures had been relaxed. It encompassed the brief window for the nation before Victoria began reimposing restrictions. If consumers and businesses alike were rushing out to borrow when measures were relaxed we would have likely seen some strength in the June data.

Looking ahead this week we have another full calendar of data and key updates. Tomorrow will see the release of both Retail Sales and Trade Balance data at 11:30 followed by the RBA August Board Meeting. We will hear from the RBA in total 3 times this week with Tuesday’s meeting followed on Friday by the Quarterly Statement on Monetary Policy release as well as a webinar by Assistant Governor Luci Ellis.

Matthew Dunshea

Client Relationship Manager