Statistics indicate that lending to households and businesses has gone down for the first time since 1992. Reserve Bank figures show that total credit provided to the private sector has decreased by 0.3 per cent last month.

The yearly credit growth was 6.7 percent which was much less than the credit growth of 16% during the previous year. The growth rate is the slowest in 15 years.

Housing sector credit grew by 0.4 % at the slowest pace since August. Personal credit fell 1.1% which is its third consecutive monthly decline. Business credit decreased by 1.1 per cent in December.

Financial markets expect the Reserve Bank to cut its cash rate target by 100 basis points to 3.25 per cent, its lowest level since the mid-1960s. Sui-Lin Ong, senior economist at RBC Capital Markets, said she wouldn't be surprised if there is a cut of 125 basis points.

National Australia Bank's chief economist, Alan Oster, says

"Businesses are basically just cutting back on their investment, they're cutting back on their employment - they don't need as much credit and we expect that the Australian economy's in a moderate recession in 2009."