Australia: Private credit business advances, housing slows – Westpac

Andrew Hanlan, Economist at Westpac, points out that Australia’s total credit grew by 0.4% in April, following a 0.4% rise in March (revised up from 0.3%) and tepid gains of 0.3% in February and 0.2% in January.

Key Quotes

“Credit developments in April were as expected. The business segment advanced, emerging from a recent soft spot, and housing slowed as the sector begins to cool.”

“Annual total credit growth edged lower to 4.9%, moderating from 6.6% a year ago and down from the peak of 6.7% late in 2015. Annual growth is now the slowest since May 2014.”

“Housing credit grew by 0.50% in April, slowing from 0.54% in March. The slowing trend in April was evident across both the owner-occupier segment and investors. We expect a further moderation over coming months.”

“Annual housing credit growth is 6.5%, down from 7.0% a year ago and a peak of 7.5% in November 2015.”

“Looking over the past couple of years, the housing sector reacted to a tightening of lending conditions during the second half of 2015; then regained momentum as the RBA cut rates in May and August 2016; and is now beginning to cool again in response to another round of measures. In March 2017, APRA announced additional prudential measures aimed at strengthening lending standards for housing, with a focus on investors. In addition, there have been out of cycle rate increases from the banks.”

“In terms of momentum, over the three months to April 2017, housing credit grew at 6.6% annualised, down from 6.8% recently. The cooling of the investor segment is more striking, with 3 month annualised growth now at 7.6%, after peaking at 9.1% in December 2016.”

“Turning to business, lending has been volatile over the past year, in part due to the disruption associated with the July 2016 Federal election. A burst of lending late in 2016 around infrastructure privatisation was another factor.”

“Annual business credit growth is now 3.1%, moderating from the recent peak of 7.3% a year ago.”

“Fundamentals point to moderate growth in business credit over the coming months. Business confidence has trended 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.”