Australian private sector credit accelerated at the fastest pace in seven years during September with the Reserve Bank of Australia reporting an increase of 0.8%. That increase saw the annual rate jump to 6.7%.
Housing credit continued to rise strongly, jumping 0.6% leaving the annual increase at 7.5%. Credit to owner-occupiers accelerated by 0.7%, the largest monthly increase since March 2010, with the annual rate jumping to a four-year high of 5.9%. Credit to investors, having run hot in recent years, accelerated by just 0.5%, the smallest increase since July 2013. While above the 10% annual limit APRA, Australia’s banking regulator, is comfortable with, it grew at 10.4%, the slowest annual rate since November last year.
It’s clear housing credit, while strong in overall terms, is now being driven by owner-occupier lending rather than that to investors.
And there was encouraging news from the business sector. Credit extended to firms jumped by 1.2% in September, also a seven-year peak, leaving the annual rate at 6.8%. The figure marks the fastest annual expansion since February 2009, and is a promising sign for business activity, and potentially capital expenditure, in the period ahead.
The bounce in business credit corresponds with a recent improvement in business conditions with the NAB’s September quarter business survey revealing current conditions are now perceived to be the best seen since 2008.
Perhaps it’s a coincidence, but the NAB survey has a great reputation in the marketplace, and a steady improvement in business confidence has corresponded with an acceleration in business lending.
We may finally be seeing signs that Australia’s economic transition is gaining traction.
While business and housing credit growth was strong, keeping with a familiar trend, consumer credit remained weak. It rose by just 0.1%, leaving the annual rate at 0.5%.
Given the importance of household consumption in powering Australian economic growth, particularly during the transition, many will be hoping that the acceleration in housing and business lending will be a harbinger for growth in consumer credit in the period ahead.
If it joins in, it’s almost certain that economic growth will follow suit.