- Australian private sector credit growth remains anaemic, especially for housing and personal purposes.
- In January, housing credit grew by the smallest amount since 1984. Over the year, growth was the weakest on record.
- The weakness in housing credit reflects a steep slowdown in both investor and owner-occupier categories.
- Tighter lending standards, reduced demand and more borrowers servicing amortising loans explains the sharp slowdown.
- Personal credit demand plunged by 0.6% last month. Over the year, it fell by the most since the GFC.
- Business credit growth remained firm, both over the month and the year.
Credit growth to Australia’s private sector remains weak, driven by ongoing weakness in housing and personal categories.
According to the Reserve Bank of Australia (RBA), credit grew by 0.2% in January after seasonal adjustments, undershooting expectations for a slightly larger increase of 0.3%.
The monthly result, identical to that seen in December, saw credit growth from 12 months earlier slow to 4.3%, the weakest expansion since February 2014.
Credit growth effectively measures changes in the outstanding amount of debt issued to Australia’s private sector.
Credit to purchase housing grew by just 0.2% from December, the smallest monthly increase since July 1984.
From a year earlier, housing credit increased by 4.4%, the equal-weakest result on record.
Yes, on record.
Housing credit was expanding at an annual pace of 6.6% back in late 2017.
Credit for owner-occupier home purchases rose by 0.3% from December, the smallest increase in five years. For investors, credit grew by 0.1%, maintaining the glacial result seen in recent months.
Over the year, credit growth to owner-occupiers grew by 6.2%, the smallest expansion since September 2015. The decline for investors was even sharper over the same period, slowing to just 1%, again the lowest level on record.
The moderation in housing credit over the past year reflects the impact of tighter lending standards and, partially as a result, falling home prices, helping to curb demand for finance.
The ongoing switch from interest-only to amortising loans has also been a factor, seeing outstanding loan balances paid down by an increasing number of borrowers.
Outside of housing, the results were mixed. Personal credit plunged again while that extended to business rose modestly.
For businesses, credit grew by 0.3%, seeing the annual increase accelerate to 5.2%, the fastest pace since the end of 2016.
The result is consistent with the strong lift in business investment recorded in the final three months of last year, along with expectations for increased investment in the next financial year.
In contrast, personal credit plunged by 0.6%, the largest monthly contraction since August 2011. From a year earlier, personal credit fell by 2.8%, the steepest fall since late 2009 during the aftermath of the GFC.
Persistent weakness in personal credit demand may reflect factors such as the increased prevalence of buy now, pay later services, along with the impact of tighter lending standards for items such as car purchases and holidays.
However, the decline may also reflect growing concern among households about falling property values, seeing spending deferred in favour of paying down debt despite continued strength in labour market conditions.
Retail and new car sales were both very weak in the final three months of last year, coinciding with an acceleration in property price declines in Sydney and Melbourne.
The weakness in personal credit demand suggests those trends continued into January.
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