Australia: A subdued start of 2018 for private credit - Westpac

Andrew Hanlan, Research Analyst at Westpac, notes that Australian credit to the private sector began the 2018 year on the same note that it finished 2017, recording relatively subdued growth.

Key Quotes

“Credit grew by 0.3% in January, to be 4.9% above the level of a year ago - matching the December outcome.”

“The key themes are: a trend slowing in housing credit, led by investors, in response to tighter lending conditions; and business credit volatility around a modest upward trend.”

“In January, business credit declined by 0.1%, following a gain of only 0.1% in December. These sub-par outcomes compare with a 0.3% monthly average gain during 2017. This is likely a temporary lull, a re-run of the soft spot evident at the start of 2017 which was a consolidation after some sizeable deals.”

“Housing credit growth was a reported 0.48% in the month of January, up a tick on the previous two months - a 0.45% rise in November and a 0.43% increase in December. Despite this, the trend slowdown remains in place and is set to continue in our view.”

“The three month annualised pace for housing credit growth has moderated from a peak of 6.8% in March 2017, to 6.6% in June, 6.3% in September, to be 5.6% in both December and January.”

“Tighter lending conditions were largely directed at the investor market. The upshot is a more marked slowing in investor credit.”

“Indeed, the slowing in investor credit growth is more pronounced in the latest figures, which incorporate significant revisions. These revisions impact only the mix between investors and owner-occupiers, with no change to the total.”

“For December, investor credit growth has been revised from an originally reported 0.34%mth, 6.1%yr to 0.18%mth, 3.3%yr. The 3 month annualised pace of investor credit is now 2.2%.”

“For owner-occupiers, credit growth was a robust 0.6%mth, 8.0%yr in January. The three month annualised pace is 7.3%, moderating from a peak of 8.9% in July. Of note, first home buyers are returning to the housing market in greater numbers, encouraged by some state government initiatives and as investors pull-back.”

“Turning to business credit, this is volatile month to month around a modest upward trend. Annual growth is 3.4% currently, down from a high of 4.5% in August.”

“New lending, commercial finance, has been on a firmer footing since mid-2016. Recall, business lending slumped ahead of the July 2016 Federal election as firms delayed spending. That said, while the level of new lending is up from the 2016 lows there is an absence of a clear upward trend.”

“In 2017, the business mood improved, mirroring the global trend. This has translated into an increase in business investment in the real economy by the non-mining sectors, particularly in construction.”

“Currently, business credit growth is undershooting growth in non-mining business investment, the reverse of the experience in recent years.”