Australians are turning their backs on credit, gripped by the fear of losing their job as the economic outlook turns increasingly grim.
More economists now believe a recession is unavoidable, if the country hasn't already entered one for the first time since the early 1990s.
Technically, a recession is defined as two consecutive quarters of negative economic growth. Federal Treasurer Wayne Swan won't be drawn on whether Australia will suffer that fate. "I don't speculate about the outcome of the figures," Mr Swan said on Friday. "It's a global recession and we're not immune from the fallout ... It's got much, much worse than anybody could ever have imagined."
The world's largest bank, JP Morgan, has further downgraded its Australian growth forecast, and expects the economy to contract by 0.5 per cent in 2009, a marked change from its previous estimate for a modest 0.2 per cent expansion. "Deteriorating conditions offshore and the worsening credit crunch point to a deeper Australian recession than previously forecast," JP Morgan's chief economist in Australia, Stephen Walters, said. "Increased anxiety about job security will be a heavy burden for consumers in 2009."
New data released on Friday shows that demand for credit recorded its first monthly fall since the 1991-92 recession. Total credit fell 0.3 per cent in December, while the annual rate of 6.7 per cent was the slowest pace since 1994.
Economists had expected a 0.5 per cent increase in the month. "There should now be nothing in the way of the RBA (Reserve Bank of Australia) delivering a large interest rate cut next Tuesday and signalling a desire to do more of the same at future meetings," TD Securities senior strategist Joshua Williamson said.
Financial markets are pricing in the risk of the RBA cutting its official cash rate by a further 100 basis points when its board meets on Tuesday, it's first meeting this year. This would take the cash rate to 3.25 per cent, a 45-year low. The markets are fully pricing a 2.0 per cent cash rate by mid-year. A breakdown of the RBA's credit data was even more dire.
Personal credit - outside of home loans - sunk a further 1.1 per cent in December and now stands 5.2 per cent lower than a year earlier. This is despite the central bank's 300 basis points worth of easing in the last four months of 2008. Total housing credit grew by a mere 0.4 per cent to an annual rate of 7.6 per cent. "This was despite the increase in affordability from lower official interest rates and the increase in the First Home Owners Grant in the month," Mr Williamson said. The government doubled the grant to $14,000 until June this year for existing home purchases, and to $21,000 for newly built homes, as part of last year's $10.4 billion economic stimulus package.
Worse still, business credit also fell for the first time in almost five years, down 1.1 per cent in December to an annual rate of 8.0 per cent. "The fall in business credit does suggest that the impending slowdown in business investment is occurring earlier than we thought," ANZ senior economist Katie Dean said.
Business investment has been a major plank for the economy in recent years, particularly in the resources sector as profits from China's demand were sunk back into companies' infrastructure.
Sunday, February 01, 2009
Friday, January 23, 2009
Preventing those after Christmas credit card blues
As we get ready to start work in the new year, you may be suffering from credit cards blues as the thought of those bills that are about to hit your letterbox start to filter into your mind.
The easy way is not overspending, but I guess that that advice is a little late.
So lets have a look at a few suggestions for managing the debts that have become a reality for you.
The first thing you need to do know how bid your debts are.
Once you have this picture, maybe you can do a card swap. NAB and other lenders are offering interest free transfers right now.
Switching to this arrangement and then committing to debt reduction within the interest free period might save your bacon.
By pay off this debt over say the next six months or 90 or however long the grace period will put you in control.
Even if you don't switch your bank credit cards, make a habit of paying the whole debt to zero in the normal interest free period.
Never just pay the minimums. This is a suckers path to eternal debt.
Please remember that Christmas is a one day event. It is not worth spending six months of your surplus income on and then paying your credit card debt off over the following year.
The easy way is not overspending, but I guess that that advice is a little late.
So lets have a look at a few suggestions for managing the debts that have become a reality for you.
The first thing you need to do know how bid your debts are.
Once you have this picture, maybe you can do a card swap. NAB and other lenders are offering interest free transfers right now.
Switching to this arrangement and then committing to debt reduction within the interest free period might save your bacon.
By pay off this debt over say the next six months or 90 or however long the grace period will put you in control.
Even if you don't switch your bank credit cards, make a habit of paying the whole debt to zero in the normal interest free period.
Never just pay the minimums. This is a suckers path to eternal debt.
Please remember that Christmas is a one day event. It is not worth spending six months of your surplus income on and then paying your credit card debt off over the following year.
Greedy banks raise credit card rates as official cash rate falls
Australian banks are accused of being greedy and taking advantage of the financial crisis and the Rudd Government' s shop message, as they slide up the credit card interest rate by up to 2% as official cash rate falls by a similar amount.
Research has revealed at least five card providers increased their interest rates in the past three months, even though the RBA has slashed the cash rate by 2 per cent since September.
According to financial data company Infochoice, GE Money and Wizard Home Loans had both increased credit card rates by 2 per cent or more since September, when the RBA began its series of rate cuts.
Bank of Queensland, Citigroup and Suncorp had also increased rates on some cards by up to 0.84 per cent.
Crucially, not a single credit card provider passed on the entire two percentage points of official cash-rate cuts announced since September.
Commentators said banks should be put under more pressure to ensure that interest-rate cuts are applied across the range of financial products, so the economy gets as much stimulus as possible.
So far the Federal Government has given away $10.4 billion in a massive financial giveaway, and the RBA has cut rates aggressively, yet part of the benefit of these measures is being wiped out by banks, which are keeping the savings for themselves.
"By not passing on the rate cuts, card companies are doing nothing to alleviate the debt burdens on Australian households so are limiting the effectiveness of monetary policy,'' TD Securities senior analyst Josh Williamson said.
"It could be banks are robbing Peter to pay Paul - using money from credit cards to help subsidise cuts to their mortgage rates.''
With the average credit card rate at just under 20 per cent, borrowers paying over the odds should switch as soon as possible - preferably to a zero per cent deal which will help them pay off the capital quickly.
Research has revealed at least five card providers increased their interest rates in the past three months, even though the RBA has slashed the cash rate by 2 per cent since September.
According to financial data company Infochoice, GE Money and Wizard Home Loans had both increased credit card rates by 2 per cent or more since September, when the RBA began its series of rate cuts.
Bank of Queensland, Citigroup and Suncorp had also increased rates on some cards by up to 0.84 per cent.
Crucially, not a single credit card provider passed on the entire two percentage points of official cash-rate cuts announced since September.
Commentators said banks should be put under more pressure to ensure that interest-rate cuts are applied across the range of financial products, so the economy gets as much stimulus as possible.
So far the Federal Government has given away $10.4 billion in a massive financial giveaway, and the RBA has cut rates aggressively, yet part of the benefit of these measures is being wiped out by banks, which are keeping the savings for themselves.
"By not passing on the rate cuts, card companies are doing nothing to alleviate the debt burdens on Australian households so are limiting the effectiveness of monetary policy,'' TD Securities senior analyst Josh Williamson said.
"It could be banks are robbing Peter to pay Paul - using money from credit cards to help subsidise cuts to their mortgage rates.''
With the average credit card rate at just under 20 per cent, borrowers paying over the odds should switch as soon as possible - preferably to a zero per cent deal which will help them pay off the capital quickly.
Subscribe to:
Posts (Atom)