RBA Credit May 2010

Today’s May RBA Credit data indicates, in our view, that credit growth is supporting domestic growth outlook. The 0.4% rise in business credit is positive for the expected recovery in business lending over 2010 and 2011. But the recovery may be gradual. Corporate deleveraging appears to be at its end in the current cycle. But there is also a considerable build-up in cash and term deposits which imply that corporates remain cautious about the availability of finance. Housing and personal credit growth are on track for reasonably firm annual growth rates by the end of the year. The decline in First Home Buyers has been the major cause of the falls in the monthly housing finance figures in late 2009 and early 2010. The other two borrowing groups, the trading-up owner occupiers and investors are still quite active. We expect the total monthly credit figures to maintain a modest upward trend as business lending recovers and monthly housing credit growth runs at 0.7%.
Housing credit rose by 0.7% in May to be 8.6% higher over the past year. Owner-occupier credit rose by 0.6% to be 9.4% higher over the year. Investor related credit rose by 0.7% to be 6.6% higher over the year. The monthly investor credit figures have been edging higher since early 2009. Rental growth has been firm, driven by strong population growth.
Business credit rose by 0.4% in May. The annual change in business credit looks to have troughed in November 2009. Business credit is expected to return to a positive annual growth path in early 2011, as the large monthly falls of late 2009 are replaced with rises. We are forecasting business investment to keep rising through 2010 and 2011. The business and ABS surveys remain positive on the investment and growth outlooks. The mining sector, particularly the LNG plants, will be the major driver of higher investment in their own and related sectors. The utilities, transport and infrastructure sectors will also be contributors.
Personal credit rose by 0.5% in May to be 3.1% higher over the past year. A number of factors are lifting the personal credit figures. The major one has been the gradual lift in margin lending into the share market. Consumers also appear to be gradually changing their relatively cautious use of credit cards. Analysis of credit card activity indicates that consumers are slowly moving away from using their own cash, towards a greater use of credit. There are, in our view, reasonable grounds to be positive on the outlook for consumer spending and credit card usage later this year. The jobs market will continue to strengthen, lifting wages and household disposable income growth.
Source CBA Enconomics


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