Weak consumer borrowing 'is a key concern for Australia'

Consumer borrowing is a cause for concern, it has been claimed.

Weak consumer borrowing, which could include home loans and Aussie credit cards, is one of the key concerns facing the Australian economy, according to one expert.

Savanth Sebastian, an economist at CommSec, said that lending finance is one of the key barometers of economic health, as an increase in this will sooner or later translate into higher spending and production.

He stated in a report that the natural disasters which have affected the country in recent times has had a part to play but the fact that personal finance has declined for six of the last eight months is cause for concern.

"The impact of the floods is clearly complicating analysis of the lending data but the sustained softness of consumer borrowing remains the key concern especially given that personal finance has fallen for six out of the last eight months," he stated.

Mr Sebastian said that the Reserve Bank must monitor this and analyse how long the slump in consumer borrowing by way of Aussie credit cards and home loans is likely to last.

Towards the end of last year, there were economic indicators suggesting that consumers and businesses were beginning to regain confidence and spend more money, but this optimism has receded and the situation looks worrying.

Mr Sebastian added that price inflation regarding commodities such as oil is another area that needs to be watched, with unrest in the Middle East and Africa driving prices to record highs at a time of fragile economic recovery.

Both of these key issues must be deliberated before the Reserve Bank can begin to think about increasing interest rates, he said in his report.

Matthew Quinn, chief executive of Stockland, told the CEDA property conference in Sydney recently that there has been a fundamental shift in attitude among Australians towards credit card debt and that this is here to stay for the foreseeable future.

the Australian banking system has been profiting from falling bad-debt charges of its customers.

According to banking analyst at JP Morgan Scott Manning, many banks are trying to find ways that they can boost their profitability.

He stated that some have found been focusing on their mortgage offerings in order to survive the difficult economic period.

"Banks that were growing strongly during the global financial crisis have dramatically slowed their domestic mortgage growth rates and are focusing on the profitability of the existing mortgage book," Mr Manning said.

Business Day also reports that banks are trying to boost demand for home loans and credit cards.

However, Mr Manning stated that many people are restraining their borrowing behaviour as their consumer spending power declines as pay cuts and rising living costs take effect.

As a result of the difficult financial situation, Don Stammer advised people to avoid having unmanageable credit debts in an article for The Australian.