Australia’s private sector credit growth remains at weaker pace in August

Australia’s private sector credit growth continued to remain at a subdued pace in August. It rose just 0.4 percent sequentially. On a year-on-year basis, growth dropped 5.8 percent in the month, the weakest in nearly two years. The rate of credit growth in Australia has now dropped further below the long-run average of 6.4 percent. The subdued growth in the past few months and be mostly attributed to business credit.

Business credit rose only 0.1 percent sequentially in the month, whereas the year-on-year growth slowed to 5.7 percent, the weakest in one year. Monthly rise in business credit has averaged 0.1 percent in the last four months. In the prior four months, monthly growth averaged 0.6 percent. This might suggest a projection of weaker business activity in the September quarter, said St George Economics in a research note. It might be in line with certain weakening in business conditions in recent months; however, conditions continue to be at more than average levels.

Meanwhile, housing credit has risen at a consistent rate of 0.5 percent each month in the last five months to August. Owner occupier and investor credit both rose 0.5 percent in August. The year-on-year rate of investor credit of 4.6 percent is lagging the 7.6 percent growth of owner occupier credit as APRA measures have been a drag on investor appetite. Other personal credit continues to be the major area of weakness in the private sector credit. Private sector credit has shrunk for the eighth straight month, falling 0.1 percent in August. The annual pace of contraction was 1.2 percent, the weakest in four years.

Private sector credit growth continues to be modest and seems to be in line with stable ‘close-to-trend’ pace of economic growth. However, the recent weakening in business credit might imply that business activity has eased and lowers the prospects for solid employment and business spending, according to St George Economics.

On the housing front, there is continuous steady growth in credit. There is little hint of a significant rebound in the light of central bank lowering rates in May and August, and APRA measures continue to be a restriction on demand. However, the rebound in auction clearance rates might result in a stronger price rises and thus a recovery in turnover and activity in months ahead.

“At present, the RBA seems relaxed about the financial stability risks that could potentially come from the housing sector, and raises the chance that further interest rate cuts are on the cards”, added St George Economics.