Australia | Apr 04 2008
By Chris Shaw
In a quiet week for economic data in Australia private sector credit growth for February was the only number released but as Macquarie notes there are important implications that can be drawn from the number.
Private sector credit grew at just 0.7% for the month, which is below the long-run average growth rate of 1.0% and shows a continuation of a downtrend from December’s peak. Housing credit growth was strongest at 0.9%, while business credit rose a weaker 0.5% and personal credit eased 0.1%.
Looking at housing credit specifically the broker notes the 0.9% increase implies an annual pace of growth of 11.4%, which is the lowest rate of increase since 1998. In the broker’s view this is likely to be the result of not only a slowing in demand for new loans but existing borrowers paying down the level of their loans, as evidenced by the increasing trend in repayments.
The broker’s analysis of the latest figures suggests even if credit growth recovered in March to match the long-term average growth rate there will be a fall in credit stock as a share of GDP to around 20% from its recent peak of 26%. Risk here remains to the downside as the broker sees recent hikes in official interest rates and increases in lending rates by the banks as tempering the enthusiasm of individuals and businesses for additional credit.
In other words the broker suggests the data show the economy is responding to the latest rate increases by the Reserve Bank of Australia (RBA), though the key remains how well this flows through into a slowing of domestic demand. In Macquarie’s view the slowdown in demand won’t be enough to prevent the RBA from again lifting interest rates this year.