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Andrew Hanlan, Research Analyst at Westpac, points out that Australian credit to the private sector is expanding at a modest pace as housing slows and in April, total credit grew by 0.4%, in line with the average of recent months.

Key Quotes

“Annual credit growth is 5.1% currently, following a 4.8% increase in 2017, representing a slowdown from a 5.6% outcome in 2016 and a 6.6% result in 2015.”

“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 uptrend.”

“The April update confirmed these trends.”

“Housing credit grew by 0.43% in April, the softest monthly outcome since March 2016 (ahead of RBA rate cuts) and before that since August 2013. Annual growth is now 6.0%, the slowest pace since March 2014.”

“At the turn of the year, business credit hit a soft spot – with outcomes of +0.1%, -0.1% and +0.2% for the three months to February. The March and April outcomes of 0.7% and 0.5% signal that business credit is emerging from this soft spot consistent with the current broadly positive fundamentals. Recall a stalling occurred early in 2017, which also proved to be short-lived – potentially suggesting a shift in seasonal patterns.”

“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 with new projects required to meet the needs of a rising population and against a positive global backdrop.”

“Currently, business credit growth is undershooting growth in non-mining business investment, the reverse of the experience in recent years, suggesting a greater reliance by businesses on internal funds.”