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September, 2018 6:50 AM



Slowest loans growth in 26 years

Slowest loans growth in 26 years

Private sector credit (effectively outstanding loans) rose by 0.4 per cent in July after a 0.3 per cent rise in June.

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31.08.2018 03:57 PM

Slowest growth of loans & deposits in 26 years
Private sector credit; China data

Lending: Private sector credit (effectively outstanding loans) rose by 0.4 per cent in July after a 0.3 per cent rise in June. Credit was up 4.4 per cent over the year – the equal slowest growth rate in 4½ years. Investor housing finance rose 0.1 per cent in July with annual growth easing to a record low of 1.5 percent. Annual deposit growth at banks in July was the slowest in 26 years.

China purchasing managers indexes: The National Bureau of Statistics’ Manufacturing Purchasing Managers’ index rose from 51.2 to 51.3 in August, above market forecasts for 51.0 points. The servicesgauge rose from 54.0 to 54.2, above consensus expectations for53.8 points. Results above 50 pointsimply expanding activity.

What does it all mean?

Interesting times. When was the last time that monetary aggregates like broad money grew  this slowly, or for thatmatter bank deposits? Actually it was 26 years ago. And that was a time when the economy was emerging from recession. Investor housing loans haven’t grown this slowly since records began 28 years ago. Personal lending has been contracting in annual terms for almost three years.

Of course when lending so slowly it is seen by some as a ‘disaster’ and when loans are surging it is seen as a ‘disaster’. But there are no great concerns currently. The Australian economy is posting firm growth without needing to be ‘rocket-fuelled’ by credit. Company profits are at record highs, business conditions are near record highs, consumers are spending and unemployment is at 6-year lows. The economy has a greater chance of maintaining its record-breaking economic expansion in the current environment.

What do the figures show?
Private sector credit

Private sector credit (effectively outstanding loans) rose by 0.4 per cent in July after a 0.3 per cent rise inJune. Credit was up 4.4 per cent over the year – the equal slowest growth rate in 4½ years.

Housing credit grew by 0.4 per cent in July after a 0.3 per cent increase in June. And the annual growth eased from 5.6 per cent to 5.5 per cent – the lowest growth rate for 4½ years.

Owner occupier housing credit rose by 0.5 per cent in July to stand 7.6 per cent higher over the year.

Investor housing finance rose by 0.1 per cent in July with annual growth easing to the slowest rate on record of 1.5 per cent.

Personal credit fell by 0.1 per cent in July to be down 1.4 per cent over the year. 

Business credit rose by 0.5 per cent in July with annual growth lifting from 3.2 per cent to 3.4 per cent.

Both the M3 money aggregate and Broad Money were flat in July to be up 1.9 per cent for the year. Broad Money is growing at the slowest annual pace in almost 26 years. And M3 is growing at the slowest growth rate in 26 years.

Term deposits with banks rose by $13.3 billion to $594.6 billion in July – the biggest monthly increase in 8½ years. Annual growth rose from 3.5 per cent to 4.7 per cent, a 12-month high.

Loans and advances by banks grew by 4.6 per cent in the year to July – the equal slowest growth rate in 26 years. And loans and advances by non-bank financial intermediaries rose by 6.2 per cent over the year, up from 5.0 per cent in June.

Deposits at banks rose by 0.9 per cent in July to stand 1.9 per cent higher than a year ago – the equal slowest rate in 26 years.

What is the importance of the economic data?

Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.

What are the implications for interest rates and investors?

Lending and deposit growth are modest, pointing to modest growth of prices and wages. There are no pressures to move the cash rate. For banks it is a different question with rates. Banks have to weigh up higher funding costs, slower growth of deposits and competitive pressures from non-bank lenders. Encouragingly for banks there was a sharp lift in term deposits in July – the question is whether it is a ‘one-off’ or start of a trend.

China’s economy may be challenged by the trade dispute with the US, but activity levels are still healthy and expanding. It is a watching brief.

Published by Craig James, Chief Economist, CommSec
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