Australia: Private credit posts modest growth, diminished corporate appetite - Westpac

Australian credit grew modestly by 0.4% in May, matching the outcomes of the previous two months and it represents a slight step down from the 0.5% monthly average for 2016, centred largely on the business segment, points out Andrew Hanlan, Economist at Westpac.

Key Quotes

“Annual total credit growth has consolidated recently at 5.0%, moderating from 6.4% a year earlier. Over this period, housing eased to 6.6%yr from 6.9%yr, while business has slowed markedly to 3.1%yr from a relatively upbeat 7.0%yr (at least in terms of the post GFC experience).”

“Housing credit grew by 0.55% in May. This reversed the tentative slowing between March and April from 0.54% to 0.51%, with the rebound centred on a stronger showing by owner-occupiers. We are inclined to look through the May result, with the outlook for a cooling of the housing sector.”

“The experience of recent years highlights that housing remains responsive to shifts in lending conditions. Recall that the sector lost momentum in the second half of 2015 as lending conditions were tightened. This proved to be shortlived. Momentum lifted in 2016 as the RBA cut rates in May and August of that year.”

“Turning to business, lending has been volatile around a weaker trend over the past year. There was the dampening impact from heightened uncertainty around the July 2016 Federal election. This was followed by a burst of lending late in 2016 around infrastructure privatisation, contributing to a 1.1% jump in business credit in the month of December.”

“More generally for the business segment, of late there has been an underlying loss of appetite from borrowers and from some lenders. Commercial finance while up from the lows of July 2016 is still below the levels prevailing late in 2015. In May, business credit eked out a 0.2% gain, following a 0.4% rise in April.”

“Arguably, fundamentals point to moderate growth in business credit over the coming months. Business confidence has moved higher in 2017, to be mildly positive, against the backdrop of improved conditions globally. Still relatively low interest rates are supportive and surveys report that finance is relatively 'easy to find'. However, a constraint is that investment in the real economy by the non-mining sectors remains relatively sluggish.”