Australia's credit growth stabilising at a healthy rate

Underlying growth momentum in private sector credit in Australia is driven by essentially three factors: one, low interest rates, which are encouraging all forms of borrowing, but especially for home purchases, be it for owner-occupation or investment purposes. However, one use of credit, for 'other personal' loans, appears impervious to the interest rate lure, suggesting that outside of mortgage debt, households remain quite cautious about credit. Two, macroprudential measures (including higher interest rates for housing investors but mostly supply limits) which are now beginning to weigh on investor demand. 

That said, the sharp slowdown in July to 0.6% mom from an average of 0.9% mom over the previous 12 months looks erratically weak, and expect a pick-up to around 0.75% mom. Still, growth in this segment is likely to slow over the coming months to around 10% from 10.8% currently, as banks bow to APRA's threats if this rate is exceeded. Three, the much-weakened exchange rate, reasonably firm consumption growth and tax breaks for small business investments have contributed to more dynamic credit demand from non-resource companies. 

"The 0.7% mom jump in July probably overstates the underlying momentum, so we expect a more subdued reading in August (0.3% mom). All in all, we expect a slight acceleration in credit growth to 6.2% yoy from 6.1%, a rate that is moderate by Australian standards, but well above current nominal GDP growth", notes Societe Generale.